Auditor General’s Performance Audit Report On Implementation Of The Support For Job Creation Component Under The Kenya Employment And Opportunities Project

Introduction

1. According to the 2019 Kenya Population and Housing Census Report by the Kenya National Bureau of Statistics, 38.9% of the 13 million youths in Kenya were unemployed with the numbers protected to rise. Unemployment continues to pose a serious challenge with over eight hundred thousand (800,000) youth entering the workforce every year. The large number of new entrants to the workforce is currently outpacing the capacity of the economy to absorb them in productive employment.

2. To partially address the challenges of youth unemployment, the government has been implementing various programs and projects. The Kenya Youth Employment and Opportunities Project (KYEOP), is one such project being implemented in collaboration with the world bank. The project started in May 2016 and was expected to end in December 2021, although that was revised to August 2023. The objective of the project was to increase employment and earnings opportunities for youths by offering training and internship opportunities as well as business grants to start-up businesses. The audits assessed one of the components under the project referred to as, Support for job creation. Under those components, youths were provided with grants to start or expand their business as well as acquisition of business development skills. The component was implemented through four (4) interventions:-

I. The Business start-up grants- where successful youth applicants were provided with Kshs.40,000 each as seed funding.

II. The Business Development Services (BDS)- which entailed business and entrepreneurship training at a cost of Kshs.40,000 per youth.

III. The Business Plan Competition (BPC)- where youths developed business plans that were evaluated for viability. Youths with the best business plans were either awarded grants of either Kshs.3.6 million or Kshs.0.9 million each to find their business ideas.

IV. Innovation Challenge for the Hard to Serve, “Future Bora”-that targeted vulnerable youths by providing income generating activities through organisations that engaged such youths. Four (4) organizations were identified and funded with Kshs.30 million each.

3. The Business start-up Grant and BDS training was implemented in cycles, where each cycle took six (6) months. At the time of the audit, the project had run 12 cycles; 1,2,3,4,5,6,7a,7b,8a,8b,8c and 8d.

4. According to the project Appraisal Document, the component was to reach 41,800 youths, in urban and rural areas in selected counties by the end of the initial project timeline of December 2021. However, the number was increased to 90,050 after the restructuring of the project in May 2021. The total funding for this component as of June 2023 was approximately Kshs.9.2 billion. KYEOP is jointly funded by the world bank through a credit facility and the Government of Kenya.

5. The project was jointly implemented by the State Department for Youth Affairs (SDYA) and the Micro and Small Enterprises Authority (MSEA).

Motivation for the Audit

6. Youths, being the majority in the country, are expected to drive social, economic and political development. Unemployment limits their ability and potential to participate and contribute to the social and economic development of the country. It was therefore necessary to assess whether the project was meeting its objective of increasing employment and earning opportunities for the youths.

7. The total funding for KYEOP was Kshs.15 billion out of which the support for job creation component was initially allocated Kshs.6.9 billion. This was later increased to Kshs.9.2 billion. These finds were expected to bring change in terms of enhancing employment and earning opportunities for the youth in the country. It was therefore, important to assess whether these funds were expended economically and efficiently for achievements of the project objective.

Objective of the Audit

8. The objective of the audit was to assess the extent to which the State Department for Youth Affairs (SDYA) and Micro and Small Enterprises Authority (MSEA) increased earning opportunities for the youth through effective implementation of the support for job creation component under KYEOP.

9. The specific objectives were to assess whether the State Department of Youth Affairs and Micro and Small Enterprises Authority:

I. Ensured achievement of the project targets;

II. Ensured efficient implementation of the support for job creation component;

III. Ensured efficient management of the contracted services;

IV. Ensured effective supervision, monitoring and evaluation of the component.

Audit Scope

10. The audit examined the implementation of KYEOP by the State Department of Youth Affairs and Micro and Small Enterprises Authority in Kenya. The audit focused on support for job creation component whose activities included; implementation of the business start-up grants, Business Development Services, Business Plan Competition and innovation Challenge for the Hard to Serve Youths also known as “Future Bora”. The audit also assessed supervision, monitoring and evaluation of the component. The audit covered the financial years from 2017/2018 to 2023/2024 which was the project implementation period including the extensions granted.

Summary of the Findings

A. Extent of Achievements of the Set Targets

11. The number of youths who had benefitted from the support for job creation component as of June 2023 was 87,432 youths against the revised target of 90,050.

12.The revised target for the BPC interventions was 750 youths from the initial target of 500 youth. Out of the 750 youth, 248 were awarded grants of Kshs.3.6 million each while 435 received Kshs.0.9 million each bringing the total achievement for this intervention to 683 youths.

13. The Business Development Services Intervention initially targeted 8,000 beneficiaries. This was revised to 8,500 and the achieved target was 7,022 beneficiaries equivalent to 83% of the target.

14. The Business Start-up Grant had an initial target of 30,000 beneficiaries which was later revised to 78,000. As of February 2023, 99% of the beneficiaries had been awarded grants of Kshs.40,000 each.

15. The Future Bora intervention aimed to reach at least 3,000 youth beneficiaries through the selected firms that served the targeted youths. The intervention reached 1,931 youth which accounted for 64% of the targeted number.

B. Achievement of Project Objectives

16. Despite the positive impact in terms of achieving the targeted number of youths, the main objective of creating employment and increasing earning opportunities for the youth may not have been optimally achieved as discussed below:-

I. Non-Responsive Beneficiaries and Failed Businesses

17. The audit revealed that close to half of the 553 beneficiaries samples were either unreachable on phone or non-cooperative by not willing to give directions to their premises, while some indicated that their businesses had failed. For instance, out of the 308 Business Start-Up Grants Beneficiaries sampled, ninety-eight(98) were unreachable on phone to give directions to their businesses while 119 were non-cooperative and declined to give audience to the audit team. We could not therefore confirm the status of their businesses. Out of ninety-one(91) youth businesses physically verified, sixteen (16) had been wound up.

18. Our analysis revealed that failed youth businesses may have been caused by inadequate follow up, inadequate mentorship and monitoring and diversion of funds to non-business- related activities.

II. Changes in the Project Design

a) Removal of the Second Orientation for the Business Start-Up Grants

19. According to Annex 1 paragraph 35 of the project Appraisal Document, the Business Start-Up Grant of kshs.40,000 was to be disbursed in two equal tranches. MSEA was to hold orientation sessions with grantees before disbursement of each of the tranches.

20. The audit revealed that after the restructuring of the project in May 2021, the second orientation was removed and the first orientation was reduced from a full day orientation to an hour session of submission and verification of the beneficiary’s documents. Removal of the second orientation meant that the second tranche was disbursed without considering and analyzing the utilization of the first tranche. As a result, the beneficiaries received the second tranche despite not having justified how they had spent the first tranche.

21. Further, restructuring of the project increased beneficiaries funded under this intervention from 30,000 to 78,000. Funding for the increased number of beneficiaries amounted to Kshs.1.92 billion. With increased funding, there was increased risk for use of funds on non-business- related expenditures. Therefore, there was a need for increased monitoring to assess whether the grants were used to start or expand businesses as per the intended objectives.

b) Reduction in Frequency of the Monitoring Activities

22. The project monitoring and evaluation plan highlights the need for continuous monitoring and tracking of the interventions. The plan identified routine monitoring of grants as critical to ensuring that funds disbursed to the youths are invested in creating employment and earning opportunities.

23. Interviews with Business Start-Up Grant beneficiaries indicated that fifty-two(52) out of the ninety-one(91) beneficiaries interviewed were not monitored between tranche 1 and tranche 2 while sixty-seven(67) of the ninety-one(91) beneficiaries were not monitored after the second tranche. Interviews with BDS beneficiaries revealed that twenty-eight(28) out of the sixty-six(66) beneficiaries were not monitored at all. Interviews with country representatives from both SYDA and MSEA revealed that monitoring of the Business Start-Up Grant intervention was conducted once as a spot check on sampled youths after disbursement of the first tranche.

24. A change in the design of the project led to the revision of the monitoring activities from being a continuous activity to a disbursement- based activity, this affecting the envisioned monitoring plan. In addition, there were no plans for continuous monitoring after the disbursement of the final tranche to the beneficiaries. As a result, beneficiaries missed out on the mentorship and coaching they would have received during continuous monitoring visits.

iii. Funding of Youths in the Business Plan Competition did not consider their Business Plans

25. Review of the samples Business plan Competition application forms and interviews with the beneficiaries indicated that youths who won the competition were randomly awarded funds without considering their business plans. Analysis of data obtained from the beneficiaries’ business plans and disbursement records indicated that 30% of the seventy-two(72) youths interviewed received more funding than they had requested in their business plans. For instance, a youth who had a business plan that required Kshs.150,000 was awarded Kshs,3,600,000, indicating that youth may have been awarded funds that they had no capacity to utilize.

iv. Future Bora Interventions did not Meet Scalability and Sustainability Aspects of the Project

26. The selection criteria for the award of the Future Bora financing was to include consideration for the interventions that would foster scalability and sustainability as part of the activities.

27. Takataka Solutions, an organization that was targeting youths working within Mwakirunge and Mavoko dumpsites in Mombasa and Machakos county respectively had activities that included payment of school fees for children of the beneficiaries. The organization entered into a Memorandum of Understanding (MOU) with four(4) kindergartens, of which one(1) was public and three(3) privately-owned. Takataka Solution was to pay half of the fees while parents were to pay the other half, from proceeds of sale of waste to the firm. For the public kindergarten, parents did not have to pay fees as Takataka Solution covered the entire fees since it was subsidized. Review of the payment records in the three(3) privately owned schools, indicated that despite the firm paying half of the fees, parents had fees arrears for two terms indicating that they could not meet their obligations. As at the time of the audit, Takataka Solutions had not purchased waste from the beneficiaries for three(3) months as the waste compressing machines were not in use, which could have contributed to the arrears. Further, the MOUs with the schools did not define the duration of the support. This meant that the firms could decide to stop the support at any time.

28. Hydroponics Africa Limited, an organization that was working with young single mothers on Agriculture-related interventions, committed to construct thirty-five(35) greenhouses and issue hydroponic kits to beneficiaries in Nakuru and Kiambu counties. At the time of the audit, the investment in the greenhouses was yet to realize a sales due to crop failure. The firm did not put in place measures to mitigate against crop failure. The intervention therefore, had challenges in meeting the scalability and sustainability objective.

29. In Kiambaa sub county in Kiambu county, the hydroponic kits did not have the capacity to produce adequate produce for sale, hence the envisaged scalability and sustainability objective had not been realized.

v. Failure to Create a Revolving Fund for the Beneficiaries of Future Bora

30. The contracts in three(3) of the four(4) Future Bora organizations states that; they would create a revolving fund to enable the youths to borrow and invest in small businesses and consequently create employment opportunities and increase their earnings. The audit revealed that the three organizations had not created and operationalized a revolving fund as at the time of the audit. Failure to create and operationalize the revolving fund by the organizations was attributed to lack of guidance by SDYA on how the revolving funds were to be created and operationalized. Consequently, the youths could not borrow and invest in small businesses that would have created earning opportunities for them.

C. Delays in Disbursements of the Business Plan Competition Tranches and Handling of Grievances

I. Delays in Disbursements of The Business Plan Competition Tranches

31. The audit revealed that there were delays in the disbursement of tranches that affected the implementation of the youth-funded business. Analysis of responses obtained from the BPC beneficiaries in the six(6) sampled counties indicated an average waiting period of four(4) months between verification of documents and disbursement of tranche 1 against the envisaged one(1) month. Disbursement of the second and third tranches was also delayed, taking as long as nine(9) months in some counties. Youths interviewed stated that, as a result of the delays, they had to scale down operations and even change the nature of businesses due to cashflow challenges. The delay was mainly attributed to the lengthy approval processes.

ii. Delays in Handling of Grievances

32. Review of the grievance redress data revealed that there were delays in grievance resolutions. Grievances that were to take two(2) days, took an average of fourteen (14) days to be resolved. Further, as of April 2023, it was not clear whether the 316 grievances that had been escalated had been resolved. The delays were attributed to inter-operability challenges between SDYA and MSEA management information systems that made it difficult to track the escalated grievances.

D. Inadequate Follow-up, Monitoring and Supervision of Project Beneficiaries

I. Business Start-Up Grants Beneficiaries

33. The State Department for Youth Affairs was mandated to follow up on beneficiaries of the Business Start-Up Grants and Business Development Services through visits and focus group discussions at the local level. Follow up and hand holding for the Business Start-Up Grant beneficiaries was to be done within one month from the receipt of the first tranche. Indicator 9 of the annex 1 of the Monitoring and Evaluation Framework highlights that 100% of youth beneficiaries were to be followed up for assessment and support after the disbursement of the first tranche. The audit revealed that thirty-six(36) out of the ninety-one(91) beneficiaries interviewed were not followed up.

ii. Business Development Services Beneficiaries

34. The audit also revealed that fifty-eight(58) out of the sixty-six(66) Businesses Development Services Beneficiaries interviewed did not receive all the seven(7) coaching and follow-up sessions they were to receive. Further, out of the sixty-six(66) beneficiaries, thirty-one(31) did not receive any coaching and follow-up. This could be attributed to lack of coordination between the consultant, field officers and the coordinating officers at MSEA head office.

iii. Inadequate Resources for Monitoring and Evaluation Exercises

35. Interviews with MSEA county project coordinators in three (3) of the six (6) sampled counties indicated that they did not have project vehicles to facilitate continuous and effective monitoring and evaluation of the youth businesses. Further, the field officers stated that that the transport allowance Kshs.500 per day, that they were allowed in lieu of vehicles, was not commensurate to the area of coverage. This was attributed to inadequate planning for monitoring and evaluation. Inadequate resources led to changes in the monitoring and evaluation program, from being a continuous activity to a need-based process. As a result, gaps that could have been identified through regular monitoring and evaluation exercises were not identified and addressed adequately.

iv. Inefficient coordination Between the Implementing Agencies

36. The audit revealed that crucial information on lists of beneficiaries who benefited from various interventions, roll-out dates as well as feedback on the status of the raised grievances was not shared between the agencies at the county level. This was attributed to inadequate coordination between the Implementing Agencies both at the county and national level. As a result, not all field officers were informed about ongoing events, therefore they could not follow up and monitor beneficiaries’ activities continuously.

37. Further, interviews with SDYA field officers in the six (6) sampled counties indicated that they had no role in the monitoring of Business Development Services beneficiaries, despite them having offices upto to the sub-county level.

E. Inefficiencies in Management of the Contracted Services

I. Target as Per Contract not in Tandem with the Planned Targets.

38. The audit revealed instances where there were differences in the targeted number of beneficiaries as per the roll out plan and the number defined in contracts. For instance, contract number MSEA/KYOP/06/2018-2019 between the Micro and Small Enterprises Authority and a joint venture company indicated that the company was to train 8,253 beneficiaries for BDS in cycle 4. Cycle 4 BDS roll out plan indicated a target of 5,774 beneficiaries. Despite setting a higher deliverable in the contract, SDYA and MSEA planned for a lower number of beneficiaries. In addition, despite training only about 60% of the number of beneficiaries defined in the contract, the company was paid Kshs.297,258,800, equivalent to 99.7% of the contract sum of Kshs.298,148,000.

ii. Inadequate Supervision of the Future Bora Consultant

39. The audit revealed that the project design allowed the consultant for Future Bora intervention to habdle the whole process of designing, implementing and monitoring of the organizations contracted to implement Future Bora interventions. The arrangement failed to consider inputs and effective checks and balances from SDYA. This could be attributed to the unclear definition of the overall oversight and supervisory role for the Future Bora interventions between the consultant and SDYA, minimizing the monitoring roles of SDYA. As a result, challenges such as failure to create a revolving fund, the hydroponic kits not having capacity to produce adequate proceeds for sale, and crop failure were not identified and addressed on time.

Conclusion

40. The support for job creation component under the Kenya Youth Employment and Opportunities Project (KYEOP) was successful in achieving the targeted number of youths in the program, having attained 97% of the targeted youths. Additionally, the component had numerous benefits including; the creation and expansion of small businesses, transfer of entrepreneurship skills to youths and increased earnings for the hard-to-serve youths.

41. Despite the component’s successes in achieving the targeted number of youths, the intended objective of increasing earning opportunities for the youth was not optimally achieved. The audit observed that there were youths who did not start businesses and others who wound up their business. Additionally, in spite of the Audit teams’ collaboration with the State Department of Youth Affairs (SDYA) and Micro and Small Enterprises Authority (MSEA) staff, half of the sampled youths could not be reached. This was because they were either unreachable on phone to give directions to their premises or non-cooperative by failing to give an audience to the audit team. This raised doubts as to whether their businesses were up and running or if they were existing beneficiaries. The expenditure or funding of Kshs.83,200,000 was made to the sampled youths who were unreachable and non-cooperative. There was also doubt about the achievement of Future Bora intervention Objectives as the projects implemented by the organizations did not meet the scalability and sustainability objectives.

42. Changes in the design of the project, may have negatively affected the achievement of the project objectives. These included reduced frequency of monitoring and removal of the second orientation. Further, it may have affected the commitment of the youths since they were not regularly held to account. Monitoring and evaluation on a sample basis was not adequate and may have contributed to the funds not being put to the intended use.

43. Inefficiencies in the implementation of the project including delays in the disbursement of funds to the recipients, may have also affected operations of the youth businesses due to cashflow challenges. The differences between the targets as per contracts and the Planned targets may have resulted in payment for undelivered services for some of the interventions.

Recommendations

44. In view of the findings and conclusions of the audit, the following is recommended for implementation by the State Department for Youth Affairs and Micro and Small Enterprises Authority for the support of job creation component and other similar projects in future.

The State Department for Youth Affairs and Micro and Small Enterprises Authority should:-

I. Put in place measures to ensure effective orientation of beneficiaries. This will enable the youths to understand the project objectives and their role and responsibilities in running their business. The orientation will also help in screening and leaving out youths who may not be serious in running businesses.

II. Considering a percentage of the funding to be repayable and form a revolving fund for other beneficiaries and remove the notion of free money. By this, the beneficiaries will be more accountable.

III. Ensured that similar interventions are implemented in a manner that will ensure sustainability and scalability.

IV. Put in place measures to ensure continuous mentorship of the project beneficiaries to assist the youths in understanding and gaining skills in running their businesses.

V. Put in place measures to ensure regular monitoring and evaluation of the projects being implemented by the beneficiaries.

VI. Fully engage field officers and ensure proper coordination with staff at the head office for the effective implementation of projects.

VII. Ensure proper resource planning for continuous supervision, monitoring and evaluation.

VIII. Put in place measures to ensure timely processing and disbursement of funds to beneficiaries to enhance effective implementation of the project.

IX. Ensure that the system for grievances redress enhances timely tracking and resolution of grievances.

X. Regularly review the achievement of deliverables by consultants to ensure they are on track and respond to any challenges hindering the progress.