A fish rots from it's head: crony capitalism exposed at the Kenya Youth Enterprise Devolment Fund

“A fish rots from the head … down”i Crony Capitalism at the Kenya Youth Enterprise Development Fund A Mars Group Kenya / Youth Interactive Portal for Enterprise Report for The Partnership for Change From Dictatorial Impunity to Democratic Accountability in Kenya June 27th 2009. 1. Background to the Youth Enterprise Development Fund (YEDF) The Youth Enterprise Development fund was launched in 2007 by President Mwai Kibaki of Kenya with a starting disbursement of KShs1 billion for the kitty. The fund was also established by a legal notice under the State Corporations Act 2007 in the name of the “Youth Enterprise Development Fund Order 2007. The initiative was founded as a vehicle to address the rising youth unemployment in the country, as well as provide youth entrepreneurs with capital for business startup and growth. The Fund became a state corporation later in 2007, autonomous from its parent ministry of Youth & Sports Affairs (MOYA). Today the Youth Enterprise Development Fund is mired in controversy, driven partly by its politically tinged history; having been created three years into Kibaki’s first term, and two years before the December 2007 election which he won in even more controversial circumstances. 2. Breaking the story On June 23rd 2009, the East African Standard published an article by Kenneth Kwama outlining a litany of accusations of financial mismanagement and impropriety at the Youth Fund. The Fund in turn through its Chairperson, Ms. Hellen Tombo accused the Standard of being used in political machinations, and looking for corruption where none exists. The basis of the East African Standard story was a management letter by the Kenya National Audit Office (KNAO) dated 28th November 2008 to the Chief Executive Officer of the Youth Enterprise Development Fund. It is not known what was the response if any there has been to this letter but the letter contains detailed audit queries which indicate significant managerial problems at this important national fund. This matter is one of urgent national importance bearing in mind Agenda 4 of the National Accord. Though the MOYA confirmed it received an investigation report from the Inspectorate of State Corporations they denied having lost any money. Minister Hellen Sambili said the Inspectorate’s report makes several recommendations to strengthen the governance structures of the Youth Enterprise Fund but makes no mention of "anything about the disappearance of money". On June 26th 2009, the MOYA published a paid advertisement in the Daily Nation reiterating the same. Since the Youth Fund’s press briefing, no other media mentions have emerged regarding their response on the discrepancies outlined in the Kenya National Audit Office management letter to the Youth Fund. 3. Questions regarding the findings of the Kenya National Audit dated 28th November 2008 to the Youth Enterprise Development Fund as well as various corporate governance matters arising from the conduct of the Youth Fund from its inception to date. 3.1. Locus standi of the Partnership for Change (P4C) The Partnership for Change (P4C) is an open initiative of the Mars Group and other like-minded organisations, civil society agencies, NGO’s, youth groups, faith based organisations, social movements and grass-roots organisations and networks from all eight provinces in Kenya. The P4C’s mission is to advance the strategic use of non-violent action in calling upon the Kenyan Citizen to demand an End to Impunity, Restoration of Democratic Accountability and an end to Dictatorship in Kenya. Page 2 of 20 The Partnership currently has an established network of 179,000 change agents spread out throughout the country’s 210 electoral constituencies. The network is also composed of by a significant proportion of youth members, many of whom engage in income generating activities, either as individual entrepreneurs or in groups. Thus the Partnership for Change is invoking its right as a representative of its youth membership to through this report pose questions to the Youth Enterprise Development Fund (YEDF) as well as its parent Ministry of Youth Affairs and Sports. This is what accountability is about. 3.2 Why this issue is important When the Youth Fund management was confronted with questions regarding the financial letter from the Kenya National Audit Office, instead of answering the queries they only politicised the issue. Further to that the public statement carried in the Daily Nation of Friday 26th 2009, do not in anyway answer the auditors question regarding its financial management. The Youth Fund in this year’s Budget is set to receive a substantial amount of money from the Exchequer. Therefore, before they receive the Funds, it is imperative that they satisfy the Kenyan public and in particular its youth who form the majority of Kenya’s citizenry that it has rectified these discrepancies, and addressed all the management issues raised in the letter by the KNAO. Principles of accountability and transparency demand that it is the role of the Government of Kenya and its public officers to answer questions posed by the citizenry they serve. To politicise issues is an act of the impunity that has allowed scandals of loss of billions of Kenya shillings to occur. Kenyan’s will remember cases such as scandals of financial impropriety that cost the Exchequer huge losses, for instance the country’s National Social Security Fund. Though the figures listed below may well be small as opposed to other scandals such as Anglo-leasing and Goldenberg, which almost crippled Kenya’s economic security, the Partnership for Change contends that it is impropriety regarding trusteeship of small sums of money that ultimately end up exploding into scandals in the range of billions. Furthermore, when the media raises issues in the public interest, duty bearers in public office are best advised to RESPOND to the issues being raised; not just to dismiss every question on accountability to mere politics. This is the era of accountability and the Partnership for Change will demand nothing short of answers when such queries are raised by the media and citizenry. To avert this, the Partnership for Change on behalf of its membership is thus posing 10 questions with the ultimate objective of not having to witness another scandal later on, if it emerges that the Youth Fund was indeed losing much needed money. The Partnership for Change is grateful to the media when it acts in the public interest by playing its role as a public watchdog. Question # 1: What are the circumstances surrounding the Kenya Pipeline Corporation’s Kshs. 50 million shillings grant to the Youth Enterprise Development Fund? From media reports, the Partnership for Change understands that the Kenya Pipeline Corporation donated Kshs. 50 million as its contribution to the Youth Fund’s startup kitty of Kshs. 1 billion. It has been alleged that these Funds were for the Chora Bizna Business Plan Competition. The Partnership for Change is asking for what purpose was this? Page 3 of 20 Figure 1: Media report on YEDF Launch containing information on Kenya Pipeline's shs. 50 million contribution Question #2: Why was the account balance of Silver Ray, an overseas job placements company overstated in the KNAO audit as at 30th June 2008? Amongst its programmes, the Youth Enterprise Development Fund has a relocation programme for placing Kenyans with jobs. Silver Ray a local recruitment company was contracted to implement this programme. They are also the sole listed agent to provide relocation loans. However, the Kenya National Audit Office found that as at June 30th 2008, the Silver Ray account with the Youth Fund was overstated by Kshs. 2 million. Why was this overstated? Figure 2: Silver Ray's website Page 4 of 20 Figure 3: YEDF website showing Silver Ray as the sole listed agent for relocation loans Question #3: Why was Apex Consulting Africa Limited single sourced for YEDF staff recruitment? According to the KNAO letter, Apex Consulting was single sourced and paid a total of Kshs. 490,000. This of course is contrary to the Kenya Government Public Procurement Act which states that approval must first be sought before entering into any single-sourced contractual obligation. The Partnership for Change is thus querying this transaction, asking if these staff members were so urgently required? Question #4: What is the Enablis/YEDF partnership about? According to media reports, the immediate former CEO of the Fund Umuro Wario was terminated due to reasons that included the single-sourcing of Enablis East Africa, an entrepreneur network that had links to President Kibaki’s nephew the late Alex Mureithi. The international network (Enablis Global) is headed by social entrepreneur and philanthropist Charles Sirois. From the Enablis website, the Partnership for Change found the following information on the network: Enablis Entrepreneurial Network is an organized, interactive network of entrepreneurs in developing countries who share similar values and who believe in the importance of small-tomedium enterprises for poverty reduction and sustainable development. The result is a group of individuals drawn together by their capacity for entrepreneurship; a powerful force for change in the developing world. Enablis entrepreneurs are specially selectedii, formally accredited, and endowed with a code of conduct and set of values that form the foundation of Enablis – Respect, Integrity, Professionalism, and Sustainability. The Enablis website also lists the Youth Enterprise Development Fund as a partner. Page 5 of 20 Figure 4: Enablis webpage showing their sponsorship of this year's Chora Bizna competition Media reports also indicate that in March 2008, Enablis EA launched a loan in partnership with the Canadian International Development Agency (CIDA), and the Kenya Youth Enterprise Development Fund. The Enablis Kenya Loan Fund aimed at assisting in the leveraging and empowerment of young entrepreneurs in Kenya by means of a matching (1:1) loan fund, into which each party (Enablis and YEDF) would contribute up to a total of Kshs. 600 million. However, it remains unknown whether this arrangement was sanctioned by the Treasury as the YEDF was expected to contribute 300 million Kenya shillings. This is not the first time Enablis has announced grand plans to empower entrepreneurs. Previous to that, in October 2007, Enablis announced that Kenya would be the first East African country to benefit from a Sh1 billion global initiative seeking to fund young entrepreneurs. It still remains unclear whether this plan has been implemented. Is Enablis East Africa a private members club? It is the contention of the Partnership for Change that Enablis East Africa (the local chapter of the Enablis Global entrepreneurial network) operates as a quasi private members club, thus not being geared to assist Kenya’s youth entrepreneurs, most of whom face liquidity constraints. To be a member of the Enablis network, one has to pay an annual membership fee of Kshs. 5,000 (US$ 65), an amount that most young entrepreneurs, particularly those that seek YEDF funds would be hard pressed to pay, in a country where the majority of people live on less that US$ 2 per day. Enablis’ directorship also reads as a who’s who in Kenyan society. Mr James Gachui, the chairman of the East African chapter, is a founder member and chairman of TransCentury, a politically connected Kenyan investment group, that has engaged in several high profile acquisitions, since 2003, including East African Cables and the Kenya Power & Lighting Company. Mr. Gachui also sits on the Board of Enablis Global. Page 6 of 20 At the time of the YEDF’s former CEO, Umuro Wario’s suspension, it was also alleged that some YEDF Board members were also directors of Enablisiii. The Partnership for Change found that Rina Karina Hicks, a director of Faida Investments and Enablis East Africa also sits on the YEDF Boardiv. Abshiro Halake another Board member is also a Trade Commissioner at CIDA who funded Enablis East Africa. There is a possible conflict of interests here as CIDA is the organisation that funds Enablis East Africa. The Partnership for Change also queries whether Board appointments concur with the Youth Enterprise Developmet Fund Order s. 5(2)(e)? The contentious Kshs. 600 million “partnership”: The Partnership for Change found on the Canadian International Development Agency (CIDA) website that the agency granted $ 10,500,000 to Enablis East Africa for an operational period of 2007 – 2012. However, what remains a mystery is if this is funding is for the YEDF/Enablis partnership or funds provided to set up the local Enablis chapter. The partnership arrangement only came to light in 2009, and according to the most recent YEDF Status Report, this partnership only commenced this year (2009). This begs the question, when was this partnership conceived of? Figure 5: CIDA grant profile to Enablis East Africa (Kenya) Page 7 of 20 Shortly after the former YEDF CEO Umuro Wario was suspended (and later terminated), a Saturday Nation article of April 25th 2009 by Jaindi Kisero reported that Umuro Wario and two managers were sent on leave for opposing an irregular deal with Enablis. Kisero wrote that the Fund was on the spot over a decision by its board to grant a Sh300 million loan to Enablis: “Correspondence seen by the Sunday Nation shows how the massive loan to Enablis Entrepreneurial Network was approved against the backdrop of vicious boardroom intrigues, pitting the board against the management of the Sh2.2 billion fund, eventually leading to the sending on compulsory leave of three top managers, including the chief executive Umuro Wario. The documents show how the CEO made several attempts to block the deal with the Canadian NGO, insisting that due diligence and public procurement regulations needed to be followed before signing the loan agreement. What was at stake was much more than a mere boardroom battle between the board and defiant managers. Underlying the controversy and the suspension of the managers are fundamental issues touching not only on the transparency of credit decisions by the fund but also the governance of what has become the largest source of subsidised credit in Kenya. Even more significant, the activities surrounding the approval of the huge loan to the Canadian NGO provide an illuminating study on how state-sponsored credit subsidy programmes remain open to manipulation by well-connected power brokers and lobbyists. According to the documents, the initial contact between the Youth Fund and Enablis Entreprenueral Network was through a former State House operative and well-connected power broker and political lobbyist, the late Alex Mureithi, a nephew of President Kibaki. The genesis of the deal is traced to a July 28, 2006v letter from the chair and CEO of Enablis and well-known Canadian entrepreneur, Charles Sirois, to President Kibaki. In the letter, Mr Sirois pledged to create an Enablis Loan Fund in Kenya to support entrepreneurship in the country. “If Kenya establishes a fund of $10 million, a matching $10 million will be introduced through Enablis,” the letter said, adding a proviso that the promises would be subject to a feasibility study by the provider of the funds — the Canadian International Development Agency (CIDA). In February 2007, Mr Mureithi presented the letter to the acting CEO of the Youth Fund, Isaac Kamande. With such a powerful political backer, it was clear that the proposal by the Canadian NGO was bound to go places. Page 8 of 20 Even though it was not stated openly, the coded message was that anyone opposing the NGO’s proposal was against an initiative or directive from State House. Events moved very fast thereafter. In March, 2007, Enablis made a presentation to the Youth Fund board, and by July, a memorandum of understanding had been signed. In October, the then Youth minister Mohammed Kuti launched operations of the Canadian NGO in Kenya. The loan agreement has become a talking point within the NGO sector, and questions are being asked why a new entrant that is yet to build a national network is being granted such a massive loan in a context of high demand and competition for money from the Youth Fund… The loan to Enablis will be the largest to be released to a single institution since the Youth Fundvi, by far the most ambitious attempt by the Kibaki administration to direct credit to enterprises owned by the young people, was established two years ago… In response to questions by the Sunday Nation, the chair of the fund’s board Hellen Tombo defended the deal with the Canadian NGO. She denied giving Enablis preferential terms and said the deal was a “unique partnership” which could not be handled under public procurement regulationsvii. She said what had attracted the board to Enablis was the Sh330 million which the NGO had negotiated with CIDA, making it possible for them to match what they would get from the Youth Fund with funds from CIDA. Ms Tombo said that although Enablis had been exempted from some of the terms for granting loans to intermediaries, the board had not committed any improprieties because the lending conditions were not static. She stressed that the board was not obliged to follow public procurement rules in negotiating partnerships such as the one with Enablis. The evidence, however, is that compared to the leveraging and matching fund arrangements which the Youth Fund has signed with intermediaries such as the KCB and Equity, the deal with Enablis does not have any major comparative advantages. For instance, the arrangement with KCB is that the Sh100 million loan must be matched at a rate of 1:9, meaning that one shilling lent by KCB to a young entrepreneur unlocks another Sh9 to qualified borrowers… Page 9 of 20 “The opportunity cost of giving the massive loan to Enablis is just too high,” said the suspended CEO, adding that the Youth Fund can leverage much more money with the Sh300 million being given to Enablis by extending the facility to local commercial banks. He added that another comparative advantage of dealing with local institutions is the fact that they have wide national branch networks. Mr Wario has also expressed fears that, considering that Enablis will just be extending loans to members of its own network – mainly urban-based entrepreneurs who have to pay a membership fee of Sh5,000 before joining – the money may not reach the Youth Fund’s target group. Under the agreement with Enablis, a copy of which the Sunday Nation has seen, the Sh300 million loan will be provided for a four-year period. The money, to be drawn in tranches, will be given to a new fund, the Enablis Loan Fund, to be run by a board of trustees whose chair will be James Gachui of the Transcentury Group Ltd. The Enablis Loan Fund is to be managed by another entity- the Enablis Financial Corporation- for a feeviii.” Figure 6: Daily Nation article on Umuro Wario's suspension Further media reports showed that immediately Wario was suspended, the Board approved the deal, although it was later cancelled by the government following revelations of irregularities. Page 10 of 20 However the most recent Youth Fund status report as at March 31st 2009, also includes the contentious Enablis Venture Capital Fund: “The Fund has established the fact that a considerable number of youth have business ideas that do not find a suitable home within the existing funding mechanisms. It is in recognition of this that the Fund has been in negotiation with Enablis Entrepreneurial Network, a Canadian firm, for the last two (2) years to set up Ksh. 600 million venture capital fund in which the Canadian government will contribute Ksh. 300 million over the next four (4) years. The partnership was signed on 20th March 2009 and the following benefits will accrue to the Kenyan youth: • • Youth with brilliant business ideas can access up to Ksh. 8 million in financing. By joining the entrepreneurial network, the youth will have unlimited business support from the network`s professionals, and fellow members .It provides a unique networking opportunity for the members. Training and mentorship: members will be taken through entrepreneurship training by Enablis, covering all areas of business development. This will augment current capacity building efforts by the YEDFB and result in cost savings. Members of the network will have continuous mentorship opportunities from older successful entrepreneurs. The partnership, which is leverage based, will unlock at least Ksh.600 million in financing to the Kenyan youth, in addition to huge investment in training and capacity development for the SME`s financed estimated at Ksh. 400 million. It is worth noting that the loans to the youth may not necessarily be tangibly secured. The youth entrepreneur can access loan up to Ksh. 8 million over a period of time. Business incubation: Through the Business Plan Competition, the Enablis model will identify and nurture budding entrepreneurs, and support them into big enterprises through the network…” • • • The local Enablis network is composed of no more than 1,000 members. Why then were they the only organization given this opportunity? There are indeed larger organizations assisting entrepreneurs in Kenya. For instance Faulu Kenya which provides both financing and business development services has a nationwide network of 72 branches. Why weren’t they given the same opportunity? Question #5. Who are the Youth Employment Scheme Entrepreneurs Association for whom 13.4 million was paid to clear their overdraft according to the KNAO management letter to the YEDF dated 28th November 2008? Investigations by the Partnership for Change revealed little about this association, which according to MOYA documents seems to have been a Ministry of Youth Affairs project in the first place. Page 11 of 20 The association’s origins seem to have been the result of the Stockholm Challenge, an ICT awards scheme started in 1994. An early MOYA brief found on their website, says that the Ministry’s major partner in training the youth on entrepreneurship is the Youth Employment Scheme – Entrepreneurs Association (YES – EA). Further the briefs adds that “through the support of UNDP and YES-EA, over 1000 youth have been trained on entrepreneurship”. If this is the case, then shouldn’t the amounts disbursed to YES-EA be categorised as training costs? It also needs further investigation to ascertain whether UNDP is still supporting this. If so, then why is the Youth Fund paying 13.4 million shillings? Finally why would the YEDF cover overdrafts for its contractors? Question #6: Was the YEDF acting within mandate when 500 million shillings was put into fixed deposit in an unknown bank? On investigating the Fund’s mandate and objective’s the Partnership for Change found no clause allowing funds to be put into fixed deposits. Further, the KNAO letter to YEDF stated that no Treasury approval was sought for this transfer to fixed deposits. In addition the letter also states that mo certificate of bank balance and bank statement reflecting the movement and ending balance of the fixed deposit account was availed for audit. Thus the KNAO concludes that the transfer could not be confirmed. Question #7: Has the YEDF achieved its goals of enabling the youth to startup new enterprise? According to the Fund’s latest status report, about Ksh. 1.53 billion was disbursed through financial intermediaries to finance 57,075 youth enterprises as at 31st March, 2009. The following is the summary of disbursement Page 12 of 20 PROVINCE Coast N. Eastern Western Eastern Central R. Valley Nairobi Nyanza TOTAL FINANCIAL INTERMEDIARY DISBURSEMENTS RATIO AMOUNT DISBURSED/ AMOUNT GROUPS GROUPS DISBURSED 5,716.00 651.00 3,682.00 11,561.00 11,645.00 12,776.00 5,469.00 5,575.00 57,075.00 138,232,644.00 25,154,949.00 86,887,081.00 279,254,354.00 338,386,644.00 297,932,579.00 236,643,856.00 131,255,589.00 1,533,747,696.00 24,183.46 38,640.47 23,597.79 24,154.86 29,058.54 23,319.71 43,270.04 23,543.60 POP CBS 2009 3,146,779.00 1,450,571.00 4,449,885.00 5,522,283.00 3,914,680.00 8,927,812.00 3,138,295.00 5,148,335.00 35,698,640.00 DISBURSEMENT/ POP 43.93 17.34 19.53 50.57 86.44 33.37 75.41 25.49 As seen above, the province with the largest number of beneficiary groups was Rift Valley. Central Province received that largest disbursement from the fund of Kshs. 338,386,644 and in terms of equitable distribution in proportion to population size, Central province once again received the highest disbursement. This illustrates clearly that loan disbursements are skewed in favour of these 2 provinces. The Constituency loans programme C-Yes is being phased out this month (June 2009) which means that the only means of ensuring equitable distribution of funds has also been wiped out. As seen by the skewedness of disbursement and the single-sourcing of procurement for instance, the Enablis partnership and recruitment of extra staff by Apex Consulting (see below), these in no way fall in line with the Fund’s value’s of integrity, accountability, fairness and equity. The Partnership for Change is therefore asking the YEDF to make evidence public that shows there has been no favouritism in loan disbursements as well as in its contractual transactions. Question #8: Has the MOYA been beneficial to Kenya’s youth? The Ministry’s mandate is to: • Promote youth development by designing policies and programmes that build young people’s capacity to resist risk factors and enhance protective factors; • Develop a National Youth Policy (NYP) to ensure Kenyan youth participation in the development of the country; • Facilitate establishment of a National Youth Council (NYC) to popularize the youth agenda; • Coordinate youth organizations in the country to ensure youth development through structured organizations, collaborations and networking. • Facilitate training and preparation of the youth for Nation building. It is the opinion of the Partnership for Change that MOYA has had a dismal record in fulfilling their obligations to Kenya’s youth. The National Youth Policy remains elusive, and there is yet to be a National Youth Council. Page 13 of 20 Question #9: How much has been lost or is unexplained; what is the level of financial discrepancies? FINANCIAL MANAGEMENT DISCREPANCIES OUTLINED IN A LETTER TO THE CEO OF THE YOUTH ENTERPRISE DEVELOPMENT FUND BY THE KENYA NATIONAL AUDIT OFFICE DATED 28TH NOVEMBER 2008 FOR THE PERIOD ENDING JUNE 30TH 2008 KNAO LETTER TO YEDF discrepancies Prado Reg No. GK A786Qix Computers & accessories Furniture & Fittings Kshs, 4,786,609.00 1,631,700.00 2,446,680.00 Remarks No log book availed for audit verification. Not possible to verify YEDF ownership. Items not coded for unique identification. Not possible to physically ascertain existence of such assets Tender Committee minutes attached to payment voucher incomplete. No evidence of any decision made in relation to this transaction. Counter receipt voucher undated. Evaluated quotations had not been attached to the payment voucherx. YEDF records indicate this amount was disbursed as CYes Loans to youth groups through Postal Corporation. However, Equity Bank main statement indicates these are not youth groups. These loans are only supported by a schedule containing a list of beneficiaries and amount receivable. Therefore it is not possible to ascertain the nature of these payments. Lack of adequate evidence of actual payees of the paymentsxi. Paid to various youth organisations vide chq # 000065 on May 17th 2007 with no supporting documents, thus payment could not be ascertained. C-Yes Loans Receivable discrepancy C-Yes Loans Receivable discrepancy C-Yes Loans Receivable discrepancy Discrepancy between YEDF credit management system C-Yes Loans accounts & financial statements Financial Intermediary Loans amount outstanding Silver Ray youth jobs abroad programme Imprests as at 30th June 2008 Interest on loan receivables Fixed deposit transferxii 7,182,825.00 15,108,075.90 9,162,000.00 50,266,388.53 637,425,000.00 2,000,000.00 271,484.00 683,086.00 500,000,000.00 loan agreements not propertly executed; not poss to ascertain how YEDF reached loan terms; receipts from intermediarieas did not support loans disbursed to financial intermediaries; loans seem unsecure as security not lodged with YEDF. The account balance of Silver Ray was overstated by Kshs. 2million as at June 30th 2008 List of imprest holders supporting the figure not availed. This amount was not recognised as accounts receivable in financial statements as at 30th June 2008 transferred without Treasury approval Page 14 of 20 KNAO LETTER TO YEDF discrepancies Government grant receivable from GoK Unreconciled funds in Equity Bank main account Unreceipted credits - Equity Bank repayment account Unreceipted credits - KCB repayment account Unreceipted credits - KCB main account: posted to cash book but not receipted Cash and bank balances Kenya Pipeline Grant to YEDF Chora Bizna Techno Serve payment as at June 30 2008 (24th July chq # 000008 and chq # 000008 of 26th April)xiii Payables and accruals Creditor balances (Mega Electronics & Dulverton) Gok startup grant Kshs, 401,826.00 22,760,240.53 Remarks Balance of what had been appropriated by Parliament to YEDF and actual grant received. According to KNAO this does not qualify as accounts receivable. Furthermore, bank statements for this account were not availed for audit. 159,200.00 2,961,947.30 867,819.00 319,003,621.00 50,000,000.00 45,000,000.00 KNAO unable to ascertain accuracy and completeness of bank balances to a total of this figure No agreement between donor & YEDF. Difficult to establish whether this figure was owed to who, because of no agreement between Kenya Pipeline & YEDF. Techno Serve did not account to YEDF how 45m was spent. 1,034,482.00 1,631,700.00 150,000,000.00 Transactions happened before 30th June 2008 but this figure was not accrued as required as at 30th June 2008, implying the creditors and accruals figure was understated by 1,034,482 shillings YEDF did not maintain individual ledger accounts for creditors. Balance left in Ministry's account from the initial Kshs. 1 billion from GoK disbursed on January 20 2007 and Kshs 850 million deposited into Equity Bank via chq # 000110 the same day. Unexplained balance regarding this amount, or any supporting documents presented indicating how this 33million has been spent. Evidence of actual expenditure not availed for audit examination thus propriety of this expenditure cannot be ascertained. From 150m left in Ministry Account Sitting allowance for District & Divisional YEDF C-YES loans Committeesxiv 33,000,000.00 9,182,000.00 Page 15 of 20 KNAO LETTER TO YEDF discrepancies Financial Intermediary Interest Income Kshs, 4,362,873.15 Remarks interest income from financial intermediaries not posted to the cash book. Interest charged to financial intermediaries as per their statements upto 30th June 2008 amount to Kshs. 5,359,205. No reconciliation made to explain cause of difference between Kshs. 4,362,873.15 on YEDF copies of miscellaneous receipts (not posted to cash book) and financial intermediary statements. No link between receipts & bankings, thus YEDF financial statement on interest income amounting to Kshs. 4,676,119 cannot be relied on. single sourced and paid vide chq # 003976/003977 of 18th June 2008. Paid vide chq # 003785 and 003786 on 21st December 2007 for promotional materials. Invoice and delivery note bears the name Pamoja Youth Foundation. Payment voucher and supporting documents not availed. Legal identity of Pamoja Yough Foundation could not be established. Paid to clear Associations overdraft with no satisfactory explanation why the YEDF felt compelled to do so Expenditure approved by Board yet it was only supported by a proposal from the Association. Not possible to establish how this firm was procured to render services to YEDF. No link between cash book and supporting documents. Not possible to confirm the accuracy and completeness of the impressed expenditure items Paid to MOYA by YEDF. Supporting documents and separate analysis of figures were not availed for audit examination. Not included as accrued expenses. Also trial balance did not capture depreciation expense and provision for depreciation balance. Apex Consulting Africa recruitment agency ImagePro Graphics Youth Training Pamoja Youth Foundation Youth Employment Entrepreneurs Association Youth Employment Entrepreneurs Associationxv Imprests expensesxvi MOYA Expensesxvii Trial Balance not reflecting all accrued expenses as at 30th June 2008xviii TOTAL DISCREPANCIES KSHS. 490,000.00 2,485,000.00 7,500,000.00 11,451,893.00 2,000,000.00 10,107,367.00 22,012,000.00 2,394,950.00 1,929,770,767.41 17. The way forward Question #10: Can the Youth Fund be termed as a model of good corporate governance? Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. Page 16 of 20 An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. As seen above, conflicts of interest definitely do exist within the Board, principally with its relations with Enablis. The Board displayed lack of accountability when the Chairperson, claimed that due to the special partnership arrangement with Enablis, she did not feel compelled to open up the opportunity to other parties. Enablis only has a local network of less than 1,000 entrepreneurs, mainly urban based. Other organizations, for instance the Kenya Commercial Bank has a nationwide network of 170 branches. There are even NGO’s apart from micro-finance institutions that serve entrepreneurs who would have been obvious choices. To name a few are K-Rep with 24 branches, Faulu with 72 branches and the Kenya Women’s Finance Trust that serves thousands of women entrepreneurs through a network of 111 offices. To have singlemindedly entered into this partnership with Enablis displays a total lack of respect for corporate governance principles. Call to Action: The Partnership for Change demands the following: 1. The Youth Fund must be held fully accountable for the monies lost as well as discrepancies in financial management. The Partnership for Change is thus putting the Public Investments Committee on notice that in accordance with section 15(2) of the State Corporations Act, we expect the acting chief executive officer as well as the Board who were sitting when the contentious agreements and transfers were made to present themselves to the PIC, thereby submitting to the scrutiny of the representatives of the people as required by the Constitution of Kenya. We also hereby call for an immediate forensic audit and freeze on the contentious and single-sourced transactions. 2. An immediate forensic audit into the activities of the YEDF should be implemented. This should also focus on the single-sourcing of contractors and partnerships. Furthermore, a policy analysis into the corporate governance structures of the Board should be done. 3. All YEDF Board members with conflicts of interest should in the public interest resign forthwith. 4. YEDF must publish all its accounts on its website with immediate effect, so that the youth of Kenya can have access to this information for our own scrutiny and action. This report also serves as an official complaint to the Ombudsman for his immediate action in view of Agenda 4 of the National Accord. KENYAN YOUTH NEED THESE QUESTIONS ANSWERED URGENTLY. The Partnership for Change From Dictatorial Impunity to Democratic Accountability in Kenya June 27th 2009. Nairobi, Kenya Page 17 of 20 NOTES i ii African proverb Highlighting by author. iii Public Officer Ethics Act 2003 s. 11. (3) A public officer whose personal interests conflict with his official duties shall – (a) declare the personal interests to his superior or other appropriate body and comply with any directions to avoid the conflict; and (b) refrain from participating in any deliberations with respect to the matter. (1) Notwithstanding any directions to the contrary under subsection (3)(a), a public officer shall not award a contract, or influence the award of a contract, to(c) a business associate; or (d) a corporation, partnership or other body in which the officer has an interest. iv Public Officer Ethics Act 2003 s. 12. (1) A public officer shall use his best efforts to avoid being in a position in which his personal interests conflict with his official duties. (3) A public officer whose personal interests conflict with his official duties shall (b) refrain from participating in any deliberations with respect to the matter. (4) Notwithstanding any directions to the contrary under subsection (3)(a), a public officer shall not award a contract, or influence the award of a contract , to (c) a business associate; or (d) a corporation, partnership or other body in which the officer has an interest. v vi The Youth Fund was launched in 2007. Highlighting by author. Kenya Public Procurement Act 2005 s. 29(3) A procuring entity may use restricted tendering or direct procurement as an alternative procurement procedure only if, before using that procedure, the procuring entity - (a) obtains the written approval of its tender committee; and (b) records in writing the reasons for using the alternative procurement procedure. vii viii The Enablis Financial Corporation is run by no other than Enablis, once again raising questions on the oversight of YEDF funds. Public Officer Ethics Act 2003 s.15. (1) A public officer shall take all reasonable steps to ensure that property that is entrusted to his care is adequately protected and not misused or misappropriated. (2) A person who contravenes subsection (1) shall be personally liable for losses resulting from the contravention. ix Page 18 of 20 x Kenya Public Procurement Act 2005 s. 45.(1) A procuring entity shall keep records for each procurement for at least six years after the resulting contract- was entered into or, if no contract resulted, after the procurement proceedings were terminated. (2) The records for a procurement must include - (a) a brief description of the goods, works or services being procured; (b) if a procedure other than open tendering was used, the reasons for doing so; (d) for each tender, proposal or quotation submitted - (i) the name and address of the making the submission; and (ii) the price, or basis of determining price, and a summary of the principal terms and conditions tender, proposal or quotation; (e) a summary of the evaluation and compared the tenders, proposals or quotations, i the evaluation criteria used; (f) if the procurement proceedings were to without resulting in a contract, an explanation why they were terminated; a copy of every document that this Act, the procuring entity to prepare; and (h) such other information or documents:: prescribed. (6) A procuring entity shall maintain a proper filing system with clear links between procurement and expenditure files. xi State Corporations Act (Cap 446) - 14. (1) Every state corporation shall keep or cause to be kept proper books recording all the property, undertakings, funds, activities, contracts, transactions and other business of the state corporation. xii YOUTH ENTERPRISE DEVELOPMENT FUND ORDER, 2007 s. 12. (1) The Board may invest any of the funds of the Board which are not immediately required for its purposes in such securities as the Treasury may, from time to time, approve. Government Financial Management Act 2004 s. 33. A government officer is personally liable to the government for any losses or damages occasioned by any act or omission in contravention of section 32. xiii xiv Government Financial Management Act 2004 s.32. A government officer shall - (b) ensure that the resources within his area of responsibility are used in a way that is - (1) lawful and authorised; and (ii) effective, efficient, economical and transparent; (c) ensure that, within his area of responsibility, no expenditure is made unless it is lawful, authorised, effective, efficient and economical; (d) ensure that, within his area of responsibility, adequate arrangements are made for the custody, safeguarding and maintenance of property; and (e) use his best -efforts, within his area of responsibility, to prevent any prejudice to the financial interests of the government. Government Financial Management Act 2004 s. 26. xv (1) If moneys are appropriated by Parliament to establish a fund separate from the Consolidated Fund, the Minister may establish such a fund. .(2) Money in a fund established under this section may be expended for the purposes for which the fund was established. (3) Unless the Treasury directs otherwise - (a) earnings or accruals of a fund established under this section shall be retained in the fund; xvi Government Financial Management Act 2004 s. 18. (1) An accounting officer is responsible to the Treasury to ensure that the resources of his ministry, department or commission are used in a way that is - (a) lawful and authorised; and (b) effective, efficient, economical and transparent. (2) In carrying out his responsibilities under subsection (1), an accounting officer shall do the following in relation to his ministry, department or commission - (a) ensure that no expenditure is Page 19 of 20 made unless it is lawful, authorised, effective, efficient and economical; (b) ensure proper financial and accounting records are kept; xvii Public Officer Ethics Act 2003 s. 8. A public officer shall, to the best of his ability, carry out his duties and ensure that the services that he provides are provided efficiently and honestly. YOUTH ENTERPRISE DEVELOPMENT FUND ORDER, 2007 – s.11. (1) The Board shall cause to be kept all proper books and records of accounts of the income, expenditure, assets and liabilities of the Board. xviii Page 20 of 20