Audit finds questionable procurement practices at GPHC

-queries raised about K D Enterprise

August 15,2016 Source

Questionable procurement practices by the Georgetown Public Hospital Corporation (GPHC) have seen unapproved firms supplying drugs, while some also failed to provide expiry dates for the pharmaceuticals and in some cases, it appears that generic drugs were supplied at a higher cost than branded drugs.

“…The Georgetown Public Hospital Corporation, in many instances, failed to follow the procurement guidelines outlined in the Procurement Act, as well as their own policy on the tendering limits,” a report by accounting firm Ram and McRae on a special investigation carried out into the medical institution says. The investigation covered the period January 2012 to May 2015 and the report was submitted to the Ministry of Finance on July 21.

The review revealed a number of issues, primarily in the areas of management of the hospital, awarding of contracts, and lack of proper internal controls and maintenance of adequate financial systems. 

The report revealed that drugs and medical supplies purchased over the three years 2012 to 2015 totalled $5.5 billion with the internal auditor reporting expired drugs of over $419 million. A significant amount of drugs were purchased from the New GPC lnc following pre-qualification of the firm to supply drugs to the GPHC by the government, an evaluation panel on which Michael Khan, the CEO of the hospital was a member, the report said.

“Certain drugs and medical supplies are purchased based on the preference of individual doctors and the hospital does not maintain a standardised list,” it revealed.

The report said that the second largest supplier to the GPHC was DOCOL (now Massy Gas Products) followed by K D Enterprise an entity which at the time of the review was not known to the Food and Drug Department (FDD) and had not registered the drugs it supplied.

“Drugs supplied by this entity over the period 2012 to June 2015 totalled $833 million. Checks with the Department found similar situations with other suppliers,” the report said. It noted that the transactions with K D Singh, a sole trader registered a business name, K D Enterprise with the Deeds Registry on 17 December 2014, was reviewed.

The report pointed out that K D Enterprise was second in value of drug purchases after New GPC. Purchases from this entity grew significantly from 2012 when it was $97.7 million to $317.9 in 2013, $329.8 million in 2014 and $107.2 million for the period January to June 2015 for a total of $852.7 million.

The report said that quotations reviewed for K D Enterprise reflected that the bidder failed to provide expiry dates for the supply of drugs or medical items. The report also highlighted what appears to be favoured treatment for the company.

It said that Contract 2657/13 was awarded to K.D Enterprise at a cost of $14,935,000, which was $5 million above the New GPC lnc’s quotation. “Justification given for the selection was that poor quality is supplied by New GPC and that KD Enterprise supplies the surgeon’s preference. However, no specified brand was stated in the request for quotation and therefore this justification is not considered sufficient as GPHC could have requested New GPC to provide quotations for the brand of the surgeon’s preference,” the report said.

Request for  approval

It noted that for this contract, request for approval was sought by Khan via a letter dated September 9, 2013 to Chief Executive Officer of the National Procurement and Tender Administration Board (NPTAB) Donald De Clou. NPTAB approval was granted by De Clou via a letter to the CEO on September 19, 2013. The report highlighted that the Recommendation by Members of the Board was not signed by anyone.

“We were informed by letter dated September 14, 2015 from the Food and Drug Department that K D Enterprise does not have an import permit for prescription drugs nor has ever been issued with a marketing authorisation for prescription items supplied to the GPHC,” the report said.

It recommended that the GPHC carry out a review of the status of all of its suppliers of drugs and other supplies and confirm with the FDD that the proposed supply has been approved for importation into Guyana. The GPHC should cease doing business with entities which are not compliant with the laws of Guyana, it added.

In relation to the New GPC Inc, the report said that the company was consistently the largest supplier of drugs and supplies to the GPHC. In each case, the procurement was cleared by a No-Objection decision from Cabinet. For 2012, total drug purchases by the hospital was $1.6 billion and of this $1.1 billion worth of drugs and supplies representing 69.4% were purchased from the firm. For 2012, the total sum was $1.8 billion and of this, $967 million was used to purchase from the New GPC while for 2014, out of total budget of $1.9 billion, $1.033 billion was used to purchase from the New GPC.

“A central feature of the proposals submitted by New GPC was the number of items – indeed the overwhelming majority for which “no price indicated as per required specification”. Equally significantly, the proposals submitted by the New GPC did not specify any information whether the drugs were branded or generic,” the report said. It noted that during the course of the investigation, the investigators sought to compare the prices of the products supplied by New GPC and two other hospitals operating in Georgetown which import drugs and supplies.

In both the case of New GPC and the comparator importers, the items are imported from India. “We noted however, that a significant number of the items brought in by the comparator entities are branded products while the opposite is true of New GPC.

This makes comparison extremely difficult since branded products are expected to be far more expensive than the generic counterparts,” the report said.

“Despite this, we found several products supplied by the New GPC that were priced both higher and lower than the prices provided to us for similar items,” it revealed.

“Moreover, the contracts entered into with New GPC were favourably framed in their interest with full payment on confirmation of the order and practically no penalties for late deliveries,” the report said while noting that the Auditor General has said in his report that each year the company delivers more than it has been paid for.

Not in line

The report also said that payments made on contracts to the New GPC are not in line with the payment terms stated in the contracts. “The contracts stated that payments can be made 100% in advance upon receipt of a bank guarantee or upon full completion of contract. However, instances were seen where the CEO authorises part payments to be made to the New GPC, based on the value of the delivery notes received,” it said.

Meantime, the report noted that a comprehensive review was conducted on a sample of 30 contracts between the GPHC and various suppliers.

On contract 415/12, for $9,900,000, bidder Bryan Parris failed to meet the minimum technical requirements for the contract and should have automatically been considered non-responsive.

Parris also failed to provide records of past performances, qualifications, experience of key personnel and list of equipment for the project as required by the bidding document.

“He was nevertheless awarded the contract. This was the only bid submitted for the tender,” the report said.

It added that NPTAB Board members failed to make recommendations as to whom contracts should be awarded to on the recommendation form maintained on file.

Also, the recommendation forms were not signed on behalf of the Ministry of Finance.

The report also highlighted a number of instances where procurement was done in contravention of the hospital’s procurement policy such as via sole sourcing. In one instance, a specialised laser was procured from Alcon at a cost of $9.9 million via sole sourcing although this is above GPHC’s limit for sole sourcing and should have gone to the NPTAB.

“A quotation for the equipment was directly sourced by the CEO, Mr Khan, who in his letter to the NPTAB noted that GPHC has previously had two Alcon lasers that were donated by the Chinese doctors that are no longer in working condition. He further noted that justification for sole-sourcing was a memo from Dr Shailendra Sugrim but this memo was dated after the CEO had already sought and received the quote. Permission was granted by Mr De Clou, Chairman of the NPTAB three days later,” the report said.

The report also said that no evaluation reports were provided/seen for several contracts while in some cases, the GPHC failed to obtain at least three quotations on contracts in breach of procurement rules. In other cases, no bids were provided.

The report said that the findings indicate that the GPHC, in many instances, failed to follow the procurement guidelines outlined in the Procurement Act, as well as their own policy on the tendering limits.

“It is also not clear whether the full National Procurement and Tender Administration Board sanctioned the contract awards,” it added.

The report had also noted that during the audit, a list of drugs sold to the GPHC by International Pharmaceutical Agency (IPA), Health International Inc and Global Healthcare Supplies lnc and a list of drugs purchased overseas by the GPHC were submitted to the FDD for advice on whether the items on the lists required approval by the department for importation into Guyana and whether they were approved.

From the list, the FDD indicated that only drugs manufactured by lntas Pharmaceuticals Limited were registered with the department. The registered drugs manufactured by Intas Pharmaceuticals Limited was supplied by IPA and Global Healthcare Supplies Inc.

However other drugs supplied by both these companies, Health international Inc and purchases by the GPHC were not registered with the FDD.

The report recommended that a list of approved drugs, by suppliers, should be obtained from the FDD by the GPHC.

“This list can be used to source approved drugs within Guyana. Other drugs to be imported into Guyana by the GPHC should be approved by the Food and Drug Department prior to purchasing,” the report said.