Audit finds Addu hospital spent nearly a quarter of its budget on overpriced consumables

The Auditor General’s Office has issued a compliance audit report on Addu Equatorial Hospital (AEH), identifying violations of state financial regulations in the procurement of medical consumables and medical machinery.

According to the audit, AEH spent MVR 183,924,350 on consumables and machinery between 2022 and 2024, 23.8 percent of the hospital’s total budget for the period. The expenditure was classified as a key audit matter due to the unusually high proportion of the budget spent on these items and because several procurements were made at prices higher than prevailing market rates, creating significant risk of non-compliance with procurement controls.

The audit also reviewed whether reagents for laboratory equipment were procured in line with laboratory requisitions, whether procurement decisions protected the interests of the state, and whether machines purchased were genuinely required and commissioned after purchase.

The report noted that AEH did not comply with Section 10.01(a) of the Public Finance Regulation, which requires state funds to be spent in the most effective and responsible manner within a competitive environment.

The main findings were:

1. Items purchased at single-unit retail price without bulk discounts:  

Under Section 10.59(a) of the Public Finance Regulation, large quantities of items must not be purchased at the separate retail price. However, of the 69 items announced in 2022 and 76 items announced in 2023, all but three were priced individually. Although AEH prepared annual material-requirement sheets, the information was not shared with bidders, eliminating the possibility of obtaining bulk-purchase discounts.

2. Weak bid-evaluation methodology:  

Although only one qualified bid was submitted for two announcements, the audit found that AEH’s evaluation criteria, which grouped items into six categories and assessed bids based on total category value, did not ensure value for money. The categories had large differences in consumption levels, meaning the method did not reflect actual financial impact.

3. High-consumption items exposed to price manipulation:  

In 2023 and 2024, four items accounted for 81 percent of total consumption. For example, disposable cups represented 55 percent of Category 1 consumption, with an annual requirement of 200,000 units. The winning bid priced this item at MVR 0.88, representing only 0.08 percent of the category’s total value. The audit noted that even a MVR 1 increase in the price of a high-consumption item could cost AEH MVR 200,000, while bidders could offset this by reducing prices on low-consumption items, creating significant risk of financial loss.

The Auditor General’s Office concluded that AEH’s bid-evaluation method and procurement practices did not safeguard public funds and posed a serious risk to the hospital’s financial interests.