Audit exposes waste in World Bank youth jobs programme

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Nancy Gathungu, Auditor-General of the Republic of Kenya. FILE PHOTO | BILLY OGADA | NMG

A series of blunders in a project started to tackle unemployment among Kenyan youth may have formed a perfect recipe for the loss of billions of shillings belonging to taxpayers, as the government mishandled the project that could have spurred the creation of thousands of jobs.

The Kenya Youth Employment and Opportunities Project (KYEOP) was started in 2016 -run by the government and the World Bank- to ostensibly address youth unemployment by creating job opportunities through the provision of seed capital to start-ups, and offering business development skills.

A total of Sh15 billion has over the past seven years been pumped into the KYEOP, Sh5.8 billion being taxpayer money and Sh9.2 billion loans from the World Bank, but youth unemployment remains a thorn in the flesh in Kenya’s economy, all thanks to State blunders that saw unworthy businesses funded, billions of shillings released without due diligence, diversion of funds meant to fund businesses to non-related uses, and now about half of the beneficiaries cannot be traced, a new Auditor-General report reveals.

In her performance audit on the implementation of the support for job creation under the KYEOP, Auditor-General Nancy Gathungu reveals that while it was well-intentioned, the challenges prevented the full realisation of the project’s key objective, boosting youth employment in the country.

“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,” says the audit which covered the spending of Sh9.2 billion in the programme.

The audit sought to assess components of KYEOP that fell under ‘Support for Job Creation’, under which youths were provided with grants to start or expand their businesses, as well as acquire business development skills.

Successful youths received Sh40,000 each as seed capital to fund their start-ups, Sh40,000 each for Business Development Services (BDS), Business Plan Competitions (BPC) were also held where successful youths to develop business plans were awarded grants of Sh3.6 million or Sh0.9 million each to fund their business ideas, and Innovation Challenge for the Hard to Serve, dubbed ‘Future Bora’. A total of Sh9.2 billion was spent on the different interventions that focused on support for job creation.

The audit notes that a total of 87,432 youths benefitted through the KYEOP between May 2016 and June last year.

The largest group of beneficiaries was under the Business Start-up Grant intervention- which sought to inject Sh40,000 seed capital for successful startups- where 99 percent (77,220) of the targeted 78,000 beneficiaries were funded, the total cost being slightly over Sh3 billion.

A total of 7,022 youths benefitted under the BDS intervention, which also sought to inject Sh40,000 for training each youth, meaning the total cost under BDS was Sh280.88 million.

Some 248 youths received Sh3.6 million each (totalling Sh892.8 million) while 435 received Sh900,000 each (totaling Sh391.5 million) under the BPC intervention.

“These funds 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 the achievement of the Project objective,” Ms Gathungu observes.

The audit, however, pokes holes in the funding and monitoring mechanism that suggests that much of the Sh9.2 billion pumped into the KYEOP for job creation support may have as well gone down the drain.

For instance, the audit notes, about half of 553 beneficiaries sampled for assessment of impact the project had on their enterprises “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.”

It notes that out of 308 youths who received business start-up grants, 98 could not be reached by auditors, while 119 declined to give audience to auditors.

“Out of 91 youth businesses physically verified, 16 had been wound up,” the audit established.

Business start-up grants formed close to 90 percent of the KYEOP beneficiaries and accounted for about a third of the Sh9.2 billion spent on the project for support of job creation, but 70 percent of its sampled beneficiaries could not be reached by auditors.

The 16 businesses (out of the sampled 91) also portray a 17 percent failure rate in the businesses funded under the grants mechanism, which on a funding basis, overall, translate to more than Sh500 million that was put in start-ups that failed.

“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,” the audit stated.

The audit cites a cocktail of failures on the government’s side, including a change in project design to loosen controls before the release of funds, poor coordination across different government agencies involved in the implementation of KYEOP and poor monitoring of businesses that were being funded, as having had the collective impact of failing to achieve KYEOP’s key objective of creating job opportunities for youths.

For instance, in May 2021, the government stopped orientation to business start-ups being funded to implement different entrepreneurship ideas, only giving them an hour for submission and verification of documents. Before, the businesses would be allocated two days for orientation before money was released in two equal tranches.

“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,” the Auditor-General deduces.

The government also cut the frequency of monitoring businesses funded under the programme from a continuous exercise to conducting spot checks during disbursement, an error the audit observed denied the government an opportunity to monitor whether businesses being funded were making progress.

The audit points out that the government was in the business of dishing out cash without considering the needs of the youth who approached it, ending up giving them up to 2,300 percent more than their needs.

For instance, Ms Gathungu notes, under the BPC- which awarded winners Sh3.6 million or Sh0.9 million for presenting best business plans and ideas- youths were randomly awarded funds without considering their business plans, which saw many funded more than their needs.

“Analysis of data obtained from the beneficiaries' business plans and disbursement records indicated that 30 percent of the 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 Sh150,000 was awarded Sh3,600,000, indicating that youth may have been awarded funds that they had no capacity to utilize,” the audit notes.

This places doubts on the value for money for the Sh1.28 billion funded to 683 youths, under the BPC.

The audit further notes that the government had delays spanning four to nine months in disbursement of funds, which may have created cash flow challenges for the startups and caused some to scale down operations or change nature of businesses.

The audit faults the State Department for Youth Affairs and the Micro and Small Enterprise Authority (MSEA), which were 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, as having failed to conduct the follow-ups as required

“Interviews with MSEA County Project Coordinators in 3 of the 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 the transport allowance of Sh500 per day, that they were allocated in lieu of vehicles, was not commensurate to the area of coverage,” Ms Gathungu reported.

“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,” she added.

The audit also revealed an instance where of about Sh297 million spent for the training of youth in a contract between MSEA and a joint venture company, Sh118 million was beyond the actual number of youths trained.

“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,” the audit stated.

Auditors raised concerns over the inaccessibility of half of the beneficiaries sampled for the audit despite auditors’ collaboration with officials involved in the funding process, pointing out that “This raised doubts as to whether their businesses were up and running or if they were existing beneficiaries.”

The sampled businesses which could not be reached had been funded with a total of Sh83.2 million.

Ms Gathungu recommends that the State Department for Youth Affairs and MSEA should put in place measures to ensure the effective orientation of beneficiaries, which will enable the youths to understand their responsibilities in running their business, and help in screening and leaving out youths who may not be serious in running businesses.

“Consider 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,” the Auditor-General has recommended.

The audit notes that despite the project existing over the past seven years, youth unemployment continues to haunt Kenya’s economy, yet the impact of the KYEOP remains dim.

Kenya had about 5 million unemployed youths (38.9 percent of their population) by 2019, according to the Kenya National Bureau of Statistics (KNBS) 2019 census.

“Unemployment continues to pose a serious challenge, with over 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,” the Auditor-General notes.

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Note: The results are not exact but very close to the actual.