To: Auditor General
From: Audit Team
Subject: preliminary audit report of Karl Heusner Memorial Hospital KHMH) – Alleged Purchases Irregularity
Date: 26/6/09
On the 22nd june 2009, the office of the Auditor General was requested by the Financial Secretary, vide gen/176/01/09 (27) vol. V to assist in the auditing of the purchases made by Karl Heusner Memorial Hospital which was brought to light in the National Assembly on June 19th 2008.
Objectives of the investigation:
- To ascertain whether the allegations regarding the supply of pharmaceuticals from non – contracted suppliers were purchased at inflated prices.
Preliminary findings
Procurement of pharmaceuticals and medical supplies – non-competitive bidding
Preliminary review of KHMH's pharmaceuticals and medical supplies procured in respect of period April 1st 2008 to June 15th 2009 disclosed that pharmaceuticals and medical supplies were procured directly from various local suppliers at prices which exceeded those offered through the competitive tender/contract process managed through the Ministry of Health.
Several instances were observed in which KHMH procured pharmaceuticals and medical supplies directly from various local entities instead of through the Central Medical Stores (cms). Due to time constraint, the investigating team was unable to verify whether cms had the supplies on hand when the purchases were made. A detailed analysis of pharmaceuticals and medical supplies purchased directly from vendors instead of CMS are spelt out below:
Hydralazine 20mg 1 ml.
- Hydralazine 20mg was purchased by khmh from three companies namely Commerce Limited ($15.50), Bradley’s Imports ($11.54) and De La Fuente Pharmacy ($67.00 and $69.00) reference to the Ministry of Health’s competitive tender/contract prices revealed that Commerce Limited was contracted to supply hydralazine 20mg/1 ml injection to the various hospitals including KHMH at a unit price of $8.70.
- As discussed with the assistant supplies officer, the tender/contract between the Ministry of Health and Commerce Limited had been exhausted and request for an addendum to contract was made. Pending the approval of the addendum khmh in the meantime purchased outside the tender process.
Company Item description unit price paid unit price – MOH tender Qty. Amount Invoice# Invoice date
Commerce limited Hydralazine 20mg/2ml $15.50 No MOH tender/contract 50 $775.00 967 12-Apr-08
Bradley's imports Hydralazine 20mg 1 ml $11.54 $ 8.70 50 $577.00 0-0076234 11-Nov-08
De la fuente pharmacy Hydralazine inj 20mg $67.00 $ 8.70 25 $1,675.00 4840 5-Dec-08
De la fuente pharmacy Hydralazine 20mg inj $69.00 $ 8.70 50 $3,450.00 4876 19/12/2008
- The procurement of these four supplies of hydralazine injection 20mg directly from local suppliers instead of acquiring through the cms at the contractual/tender price caused an additional expense of $4,614.50 from public funds.
Company Item description unit price paid by unit price – MOH tender Qty. amount paid by KHMH Amount -based on tender price
Bradley's imports Hydralazine 20mg 1 ml $11.54 $8.70 50 $577.00 $435.00
De la fuente pharmacy Hydralazine inj 20mg $67.00 $8.70 25 $1,675.00 $217.50
De la fuente pharmacy Hydralazine 20mg inj $69.00 $8.70 50 $3,450.00 $435.00
$5,702.00 $1,087.50
Difference $4,614.50
The requisitions for the four purchases were approved by Dr. Khalid Ghazy and Mr. Carlos Perrera substantiated by their respective signatures. As reflected in the dialogue with Dr. Ghazy he indicated that requisitions signed by him were so done prior to selection of vendor and prices. There was no tender for hydralazine 20mg/2ml hence price comparison was not conducted.
Salbutamol respiratory solution 20cc
-. On four occasions salbutamol respirator 20cc was purchased by h from antonio de la fuente at a unit price of $7.50 and $11.55 respectively. Reference to the ministry of health’s competitive tender/contract prices revealed that bradley’s imports was contracted to supply salbutamol respiratory 20cc to the various hospitals including khmh at a unit price of $1.17.
Company Item description unit price paid unit price – MOH tender Qty. Amount Invoice# Invoice date
Antonio de la fuente Salbutamol respiratorysol $ 7.50 $1.17 65 $ 487.50 4448 27/5/08
Antonio de la fuente Salbutamol respiratory20cc $ 11.55 $1.17 42 $ 485.10 4534 10/7/2008
Antonio de la fuente Salbutamol respiratory 20cc $ 7.50 $1.17 100 $ 750.00 4587 5/8/2008
The procurement of salbutamol respiratory 20cc from the non-contracted supplier instead of acquiring through cms at the contractual/tender price created an additional expense of $1,480.41.
Company Item description unit price paid by KHMH unit price – moh tender Qty. amount paid by KHMH Amount -based on tender price
Antonio de la fuente Salbutamol respiratory 20cc $7.50 $1.17 100 $750.00 $117.00
Antonio de la fuente Salbutamol respiratory 20cc $11.55 $1.17 42 $485.10 $49.14
Antonio de la fuente Salbutamol respiratory solution $7.50 $1.17 65 $487.50 $76.05
$1,722.60 $242.19
Difference $1,480.41
Requisitions #690 and 3728 were approved by Dr. Khalid Ghazy and Mr. Carlos Perrera substantiated by their respective signatures. Requisition #3723 was approved by Dr. Khalid Ghazy and Ms Laurel Grant.
Dobutamine 250 mg injection.
- Two instances were noted whereby KHMH procured from Antonio De La Fuente, dobutamine 250 mg injection at a unit price of $71.00, $27.25 and once from union distribution for $25.00. Comparison of these unit prices paid with the Ministry of Health’s competitive tender/contract prices revealed that James Brodies Company Limited was contracted to supply dobutamine 250 mg injection to the various hospitals including KHMH at a unit price of $13.84. There was an apparent error in that dopamine 200mg was recorded on purchase order #6914 instead of the required dobutamine 250mg. Verification confirmed that dobutamine 250 mg was included on the supplier’s invoice #4433 and accounted for on the respective bin card.
Company Item description unit price paid unit price – moh tender Qty. Amount Invoice# Invoice date
Antonio de la fuente Dobutamine viles 250mg $ 71.00 $ 13.84 50 $3,550.00 4433 5/20/2008
Antonio de la fuente Dobutamine viles 250mg/20ml $ 27.25 $ 13.84 100 $2,725.00 4472 6/13/2008
Antonio de la fuente Dobutamine 250 mg inj. $ 25.00 $ 13.84 100 $2,500.00 7689 11/5/2008
The procurement of these three supplies of dobutamine 250 mg inj from Antonio De La Fuente/Union instead of acquiring through the Central Medical Stores at the contractual/tender price caused an additional expense of $5,315.10 from public funds.
Company Item description unit price paid by KHMH unit price – moh tender Qty. amount paid by KHMH Amount -based on tender price
Antonio de la fuente Dobutamine viles 250mg $ 71.00 $ 13.84 50 $3,550.00 $691.90
Antonio de la fuente Dobutamine viles 250mg/20ml $ 27.25 $ 13.84 100 $2,725.00 $1,384.00
Union distribution Dobutamine 250 mg inj $ 25.00 $ 13.84 100 $2,500.00 $1,384.00
$8,775.00 $3,459.90
Difference $5,315.10
Requisitions # 3718 and 3725 was approved by Dr. Khalid Ghazy and Ms Laurel Grant while requisition #13409 was approved by Dr. Khalid Ghazy and Carlos Perrera substantiated by their respective signatures.
Dopamine 200mg inj.
- KHMH procured dopamine 200mg from Union Distribution at a unit price of $3.75 as compared to the Ministry of Health’s tender price of $1.85 agreed to with Commerce Limited. This purchase outside the tender process created an additional cost of $95.00.
Company Item description unit price paid unit price – MOH tender Qty. Amount Invoice# Invoice date
Union distribution Dopamine 200mg inj $ 3.75 $1.90 400 $ 760.00 34116 4/8/2009.
The requisition for the purchase was approved by Dr. Khalid Ghazy and Mr. Carlos Perrera substantiated by their respective signatures.
Omeprazole injection 40mg.
- KHMH purchased omeprazole injection 40mg from Union Distribution and De La Fuente pharmacy at unit price of $16.95 and $14.95. This item was not included on the Ministry of Health’s tender list.
Company Item description unit price paid unit price – MOH tender Qty. Amount Invoice# Invoice date
Union distribution Omeperazole $ 16.95 No tender 50 $847.50 4433 5/20/2008
De la fuente pharmacy Omeperazole injection 40mg iv (mex) $ 16.95 No tender 100 $1,695.00 4472 6/13/2008
De la fuente pharmacy Omeprazole inj 40mg iv $ 14.95 No tender 100 $1,495.00 *5237 10/6/2009
All three requisitions were apparently approved by Khalid Ghazy and Mr. Carlos Perrera
These were some specific examples of pharmaceuticals and medical supplies purchased directly from private suppliers at cost which arguably may not be cost-beneficial factoring the tendered prices contracted by the Ministry of Health. It is critical that procurement of medications and pharmaceuticals not on the tender/contract list be minimized. Reimbursement for medical supplies purchased. It was observed that the Ministry of Health reimbursed KHMH $94,443.72 for expense incurred for purchasing supplies required by the institution in cases when cms was unable to provide same.
Date Smartstream recurrent expenditure account Description amount
39888 19121 34003 610 119 Khmha moh-bill reimbursement for medical supplies $ 44,228.04
39826 19121 34003 610 119 Khmha moh--reimbursement reimbursement for medical supples $ 50,215.68
$ 94,443.72
The cost for these items were outside the tender/contractual prices therefore the Ministry of Health ended up paying for these medical at uneconomical prices. The list of these items which were reimbursed was not shown to the investigating team.
Interviews
- In an effort to get a better understanding of the purchasing process, interviews were held with staff and management which include purchasing clerk, director of finance, chief executive officer, chief pharmacist, and assistant supplies officer at central medical stores.
Discussion with Carlos Perrera – Director of Finance KHMH
- According to mr. Perera, before he began working at the khmh, the pharmacist would fill out the requisition and put the prices recommended for the supply. There was no reference to the stock balance. The requisition is then taken to the director of medical services for approval. There-after the requisition is forwarded to the director of finance for final approval.
- Mr. Perera said when he took over; he had changed the purchasing method and told the pharmacist that he would no longer control the whole process. He directed that the pharmacist prepare the requisition and pass it to the director of medical supplies for his signature and approval of the purchase of the pharmaceuticals.
- the requisition is then forwarded to the purchasing clerk who does the respective due diligence on prices and quantity. These prices are forwarded to the director of finance who reviews the prices and signs off approving the purchase. The requisition is forwarded to the accountant to sign off on the respective purchase orders.
- He also mentioned that he had stop purchasing from doctors who had businesses and were in the past supplying the hospital
- D iscussion with ms. Virginia Carrillo – Director of Finance KHMH
- Discussion with ms. Virginia carrillo who is the purchasing officer revealed that she had assumed duties of purchasing officer in october 2008. She explained that requisitions sent by the medical supplies, pharmacy and wards for sourcing from a non- contracted supplier.
- These requisitions were approved by the directors of the various departments. Further, there were no reference to prices on the requisition forms nor were there any stock balances shown.
- The purchasing clerk prepares a spreadsheet showing at least three quotations where the most economical one is used. This documented process began during the period 23rd march 2009 to 4th june 2009. Audit was informed that prior to this documented process, the purchasing clerk would make phone calls to suppliers to secure the unit prices.
- Audit was also informed that the requisition along with the price quotes would be submitted to the director of finance who would determine which supplier gets the job based on the quotation.
- According to the purchasing clerk, if there is an emergency where the hospital needed a particular drug and central medical stores cannot source it, then they would buy it regardless the price.
- Also mentioned by the purchasing clerk was that the requisitions did have the stock balances so there was no knowledge of how low the stock was.
- Ms Carrillo further explained that the khmh also purchased from foreign companies. The process of obtaining at least three quotations is also used and the director of finance would take the quotation to management meeting for approval.
Discussion with Mr. Eugene Echegi – chief pharmacist on the 25/6/09
- According to mr. Echegi khmh develops consumption patterns where monthly average usage are computed and factored into the yearly forecast with an increase of about 12.5%. This forecast is sent to the central medical stores who in turn develop their own yearly forecast for the country.
- He explained that they requisition monthly for both inpatients and outpatients and would maintain at least 1 month safety stock. He stated that the hospital uses a dual system where they use quickbooks and belize health information system (bhis).
- Further, mr, echegi stated that in the past, the pharmacist would have created the requisition, identify suppliers, unit prices, and prepares the purchase order as they would have developed a network. Now, the director of finance, mr. Carlos perera had changed the format of purchasing and therefore, the pharmacist no longer engages in identifying suppliers.
- He also explained that there are some items of pharmaceuticals that are not on the tender list which are called special authorized drugs. Of which a small quantity is being kept at the central medical stores (cms).
- According to mr. Echegi, when the hospital wants these drugs and cms cannot provide them, then the decision would be made to purchase from a non- tender supplier.
- Mr. Echegi also stated that there were times when they would requisition for items from cms and would be supplied with less than the requested amount which cause khmh to buy from non- tender suppliers.
- There were other factors that caused the hospital to shop outside the tender which apparently includes usage rate of certain pharmaceutical would go up and doctors’ preferences of certain drugs that are not on the tender.
Discussion with Miss Samira Gongora Assistant Supply Officer – Central Medical Stores on the 25/6/09
- According Ms Gongora, KHMH forms part of the computerized inventory system known as Belize Health Information System (bhis). This system provides real time inventory balances which could be seen by all who are on the system.
- according to Ms. Gongora, KHMH would have to buy from outside suppliers if:
· the supplier is still within his delivery lead schedule
· suppliers contracted quantity depleted before the supplier contracts ends for which they would an addendum approved
· cms may try and source the drug but are unable to do so
- Ms. Gongora said that KHMH inventory for medical supplies were not up date to as on the 23rd – 24th June 2009, a physical check of the inventory did not agree with the balances on BHIS.
- Also, Ms. Gongora stated that if the supplier fails to supply the items, cms would source it from the back up supplier and would pay at that price. The contracted supplier is then charged the difference if it is higher than the tender price. They have been applying this clause that is stated in all suppliers contract for the last year and a half.
- With regards to special authorised drugs (sad) cms would have to source the items after the relevant forms were signed by the attending physician, the specialist and the medical chief of staff and thereafter it is approved by the c.e.o or the director of health services at the Ministry of Health.
- Further, Ms. Gongora explained that from their observation, KHMH does not manage their inventory on the BHIS properly and when they appeal to them to start their maintenance of the system, they were told by khmh personnel that they don’t have time to update the system.
- Discussion with Dr. Khalid Ghazy – Medical Chief of Staff on the 26/6/09
- He explained that the chief pharmacist prepares the requisition of what is needed after crosschecking that cms cannot supply the items. He would then sign off on the requisition which is then taken to the accounts department where prices are researched.
- He further stated that upon signing the requisitions, he would not be aware of the prices as those were included at the accounts department. Also, purchases over $1,000.00 require the signature of the chief executive officer (ceo) and less that $1,000.00 the director of finance would sign his approval.
- Mr. Ghazy explained that the pharmacist would send its requisition at least one month in advance to CMS.
It is recommended that a more detailed review be undertaken by the Ministry of Health.
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