This study was carried out by ActionAid International-Kenya (AAIK) whose key role in the People's Participation towards Equity (PPE) program is to enhance community participation in p verty reduction efforts. At the sub-national levels, there is a special focus on ensuring the participation of marginalized groups such as, persons with disabilities, women, children the youth and indigenous peoples towards poverty eradication.

The findings show that there has been an increase in the funds allocated to communities through the CDF, LATF and line ministry budgets. Also, the allocation of the funds has not translated into improved wellbeing of intended communities particularly in ensuring food security and availability of essential services such as infrastructure, electricity, water and healthcare...

Objectives of the study
The three objectives of this public expenditure review were to:

1. Ascertain the rationale in allocating the decentralized funds at National and Subnational levels.
2. Establish the absorptive capacities of districts, constituencies and counties.
3. Identify the impact(s) of the identified allocative rationale and absorptive capacities on eradicating poverty and inequality.

The study assesses the allocative rationale by looking at the basis of allocation of funds. It explains how CDF, LATF and line ministry budgets are apportioned to various development projects from the national to the local level. Utilization is explained in the use, form, manner or expenditure of the funds while absorptive capacities are expressed as ratios or percentages of amounts used on particular projects over the total allocations. The percentages or ratios have been used to do comparisons and assessments in this study. Analysis of allocative rationality and absorptive capacity are based on the existing government regulations and priority sectors in the Vision 2030. Analysis of the impact of devolved funds on the livelihoods of communities at the sub national level, has been done to establish their observable and non-visible effects on the beneficiaries at the sub-national level, conducted in eight sampled districts where ActionAid Kenya operates. They included Kuria (Kehancha), Busia (Budalangi), Mandera West (Takaba), Ijara (Masalani), Narok South (Ololunga), East Baringo (Tangulubei), Malindi (Lango Mbaya), and Tana River (Wenje) districts.

Methodology
The study was designed to gather information at two levels of observation: the national and sub-national level. Both quantitative and qualitative data were collected through personal interviews with various key informants (District Commissioners, District Accountant, District development Officers, District Education Officers, District Agriculture/Livestock Officers, District Gender/ Women Official, District Procurement Officers, District Youth Officers, District Medical Officers and Local Authority representatives) and focused group discussions in 8 districts.

Field work activities involved a survey to collect information on allocation and utilization/absorptive capacities of line ministry budgets, Constituency Development Fund (CDF), local authorities Transfer fund (LATF) and establish the amount of money returned to Treasury annually. In addition to evaluate the impacts on poor and excluded people, local equity, service delivery and poor development trends.

Additional data from financial reports was used to complement and validate the findings. Secondary data was used to complement the survey data for the districts, constituencies and counties. While quantitative data was used for statistical analysis, every attempt was made to gather and incorporate qualitative data to complement the analysis of the allocation, absorptive capacities/utilization and the impacts of these funds in the community.

Informed consent was obtained from all respondents before being interviewed. Comparisons were made across the districts. In order to examine the impacts the study assessed awareness of funds, public participation in funds, accountability and transparency issues, operationalization of the funds, and challenges. In order to ascertain allocative rationality, utilization/absorptive capacity ratios, percentages, tables and figures were used. The ratios derived as percentages of utilization are the measures of absorptive capacities.

However, obtaining adequate financial data at the district level was challenging and calls for policy changes in information sharing on public funds especially in the line ministries. Most of the District Officials declined to give the information on financial aspects of the study. Therefore, the study used information from Government Budget estimates for analysis on development expenditures because they give a clear picture on line ministry priorities in the selected districts.

Key Findings and recommendations
The study assessed the allocative rationality and absorptive capacities in regard to line ministry budgets and devolved funds. It also examined the impacts of these funds on the livelihoods of communities at the sub national level. This was possible through literature review and primary data obtained from key informants and focused group discussions in the respective districts.

Though the devolved funds are strategic and are supposed to be effective in improving the national response to poverty, inequitable resource distribution and general livelihoods of Kenyans, the number of people living below the poverty line has increased. The findings of this review indicate that there was a 30% increase of people living below the poverty line despite CDF and LATF funds. According to the Kenya Integrated Household Baseline Survey (KIHBS) 2005/06, Malindi had 65% of the people living below the poverty line in 2009 compared to 61% in 2006, while 83% of people in Galole were living below the poverty line in 2009 compared to 42% in 2006. In Mandera 90% of people were living below the poverty line in 2009 compared to 60% in 2006.There was, however, a marginal reduction in Budalangi from 70% in 2006 to 69% in 2009.

The increased poverty levels can be attributed to persistent challenges, such as lack of effective participation of local communities in selecting,prioritizing and implementing development projects, poor public finance management at national and sub-national levels, lack of institutional monitoring and evaluation mechanisms particularly those that involve the participation of Civil Society Organizations, and the fact that budget monitoring remains a bureaucratic process. These challenges can be addressed through capacity building at all levels of government; community empowerment in budget monitoring and evaluation, stipulation of adequate safeguards for local government funds, rigorous implementation of fiscal responsibility, public procurement and other strategic policies to strengthen economic management.

Allocative rationality/efficiency
This study examined the extent to which the allocation of decentralized funds is consistent with policy priorities of the Vision 2030, and the key economic, social and political policies of priority to the Government.

The Government increased CDF allocations by 67% from 2003 to 2008, while LATF allocations increased by 60.6% from 1999 to 2009. The recurrent expenditure in the ministries of education, health and agriculture increased by 46%, 40% and 97% respectively. Development expenditure allocations increased by 209%, 153% and 380% in the respective ministries, which shows that the government is committed to achieve its development objectives through these funds.

The government expenditure estimates on social services has increased over the years from Kshs. 128.9115 million in 2005/2006 fiscal year to 216.13057 million in 2008/2009. Expenditure on education increased tremendously by 57% from Ksh. 96,027.43 million in the year 2005/06 to Ksh. 151,676.85 million in 2008/2009. This is attributed to communities' demand for improved education access through school infrastructure support by the government to achieve the MDG objectives.

At the sub-national level, budgetary allocations made during the review period were consistent with national priorities in terms of allocative efficiency. The allocation criterion was designed to ensure that funds are allocated in a predictable, transparent and fair manner as defined in the rules and regulations of the CDF and LATF Acts. The line ministries allocation criterion relies on district committees, which comprise of all stakeholders in respective sectors generating Annual District Work plans that outline the priority areas and the budgets which are sent to ministry headquarters for funding.

This study has established that there is unequal sectoral allocation. For example, key sectors like agriculture, water, health, roads and environment had low allocations in the CDF, with 2.9%, 10.4%, 10.3%, 6.4% and 0.3% respectively while education was allocated 44% of the total CDF funds in the sampled districts. A balance between health, education, and food security is vital for development. For a child to perform better in school he/she should be in good health, and have proper nutrition. The sectors that affect women such as agriculture, health and water received low allocations.

In the line ministries, sectoral allocations were erratic in that some sector programmes such as agricultural extension services were allocated 100% of the funds verses 0% in the management of food security . Poor prioritization in fund allocation has negative implications on food security and health services, and contribute to unequal sectoral development which subsequently reduces the pace of achieving the Vision 2030 and MDG objectives.

From the study 63% of the respondents said that CDF projects were initiated by the community members, 22.2% felt that the projects are initiated by area Members of Parliament, while 14.8%, credited their councilors for initiating CDF projects. Also, 45.4%, 31.8%, 18.2% and 4.5% of the respondents credited community members, local councilors, local authority officials and district officials respectively for initiating LATF projects. Further still, 38.5%, 7.7%, 7.7%, 7.7%, 30.8% and 7.7% stated that educational projects are initiated by community members, MPs, local councilors, local authority officials, district officials and the government respectively. This indicates low levels of community involvement in project prioritization. CDF scores higher in allocative efficiency due to its bottom-up approach in its project cycle management (identification, prioritization, implementation and community ownership). These components lack in the line ministry projects where the approach is top-down.

Policy Recommendations

1. To improve allocative efficiency in the line ministries, the adoption of the Medium Term Expenditure Framework (MTEF) that links policy, planning and budgeting and the adoption of Programme-Based Budgeting (PBB) are recommended. Community awareness and participation in the line ministry projects at the sub-national level should be encouraged with a bottom-up approach in project management adopted.
2. Continuous capacity building for fund managers and the community social audit groups should be done on planning and priority setting, budgeting, administration, effective supervision, monitoring and evaluation. These should be set up at the district level to train communities in fundraising to supplement Government budgets.
3. To encourage efficiency in project identification, financial reporting, project planning, evaluation and supervision, standardization of designs, technical and financial parameters, and cost indicators for the frequently requested projects should be done. This will simplify documentation requirements to reduce bureaucratic procedures in the line ministries and LAs. Standardized annual work plans for infrastructure and procurement such as model plans for hospitals built by CDF funds should be used country wide for efficient control of budgets, absorption, and monitoring, and this will curb fraudulent project costing.
4. There should be a transparent and merit-based criteria for selecting funds committee members. Committee members should be competent, have integrity, ethics, good governance practices, accountability and strategic leadership skills. Regular audits in liaison with community audit teams should be done to increase transparency in the use of project funds, and audit findings made public.
5. All devolved funds including those of line ministries, districts and constituencies should be consolidated for consistency and harmony in projects implementation, to avoid duplication and double funding.
6. Increased budgetary allocations should be proportionate with the poverty levels, population size and geographical location. This will ensure availability of critical inputs like materials and equipment at the district level. The delays in disbursing funds and AIEs to the districts should also be addressed to ensure prompt disbursement of funds the district level. Allocations should be based on budgets prepared at the district level. Work plans should be generated from the grassroots level and provisional project plans validated before implementation to prevent inflated budgets.
7. Simple performance indicators for monitoring and evaluation should be developed to define and measure progress in achieving developmental goals and assess the effectiveness of the decentralized funds. The indicators could include public awareness and participation, frequency of public board committee meetings, supervisory and monitoring meetings, collection and banking as a percentage of collection, among other indicators. These should be published and reviewed periodically to compare inter district and sectoral performance.

Utilization and absorptive capacity
In this study, absorptive capacity is defined as the extent to which line ministries, CDF and LATF managers can utilize the decentralized funds, in an effective and efficient manner.

Absorptive capacity has two connotations:

1. Financial absorptive capacity, is the ability to co-finance programs and projects supported by line ministries, CDF and LATF, to plan and guarantee these national contributions in multi-annual budgets, and to collect contributions from the partners involved in various programs and projects.
2. Administrative capacity is the ability and qualifications of central and local authorities to prepare appropriate and timely programs and projects, fund and monitor their implementation, ensure coordination of partners involved, comply with administrative and reporting requirements.

Utilization of CDF
The study shows that 81.2% of the fund managers were satisfied by the way CDF is utilized, with 18.7% partially concurring, which is a good performance. While those interviewed on LATF only 23% felt the funds were utilized to their objectives, 38.5% failed to agree and 38.5% agreed partially which is a poor performance.

The education sector absorbed the largest share of total sectoral expenditure with an average of 44% followed by water (10.36%), health 10.25%, roads/ bridges 6.39% and others 7.73%. There are, however, challenges in the use of the devolved funds:

1. The absorptive capacity at the sub-national level is low and the effect is that the funds allocated do not positively impact in the short-term.
2. There is low public awareness and participation.
3. Inadequate technical capacity of local project committees for managing the funds and their activities.
4. Inadequate funding, delays in disbursement of funds, and weak legal and institutional framework for accounting of funds and resources. Accounting is done manually by locals who lack prerequisite accounting skills. This has encouraged misappropriation of funds and embezzlements.
5. Higher levels of corruption in revenue collection in the LAs has affected service delivery.
6. Political interference in committee appointments, are other challenges experienced.
7. Conflicting policies- for instance, the criteria followed in awarding CDF bursaries is different from that of ministry bursaries. Also, procurement procedures are flawed and there are difficulties in identifying priority.
8. There is also over-dependency by communities on CDF whose attitude is that CDF is free money from the government.

Utilization of line ministry funds
The study found out that an average 44.5% of the fund managers were satisfied with line ministries fund utilization. In health/medical services, 44.4% felt the utilization was partial and the other 11.1% did not agree on the manner in which the funds have been utilized. In Agriculture/Livestock/Fisheries, 50% felt the funds were utilized well, 14.3% did not agree and 35.7% partially agreed on how the funds have been used. In education, 50% agreed that the funds were utilized to their objectives and the other 50% partially agreed.

According to the fund managers there were problems with budget execution. These include:

• Cash flow bottlenecks such as inadequate funding and delays in disbursement of funds and A.I.Es and slow procurement which comes in the way of utilization of the funds.
• Under-staffing and inadequate technical capacity for managing the funds and their activities.
• Weak institutional frameworks for accounting for the funds.
• Lack of mechanisms to sanction decisions against the funds' mandate. Hence line ministries development spending was lower than budgeted for, partly because the funds available to promote growth and poverty reduction were underutilized.
• Poor prioritization at the ministry level. Furthermore much of the funds are not utilized in the acquisition of non-financial assets in the line ministries. For example, in the Ministry of Agriculture, agricultural extension programmes utilized 100% of the allocations in Ijara, Tana River, Malindi, Busia, Baringo and Kuria and did not utilize any amount in promoting food security, among thefood-poor districts.

Policy Recommendations
To improve on the absorption capacity of line ministry budgets, LATF and CDF, the government should take the following measures:

1. Strengthen administrative capacity of personnel in line ministries and devolved fund agencies.
2. Ensure greater transparency in fund management by providing comprehensive information of public interest, and eliminating excessive bureaucracy and corruption in awarding financing for projects.
3. Standardize the rules governing access to decentralized funds, particularly application requirements to hasten the approval process.
4. Ensure completion of audit reports on the implementation of Operational Programs by the Sector Work Groups (SWG), so that they can be approved by the Exchequer by the end of each financial year, as a condition for starting the reimbursements.
5. To increase the rate of decentralized funds absorption, the Central Government and Fund Management authorities should reduce the period for evaluating, selecting, contracting and approving funds for projects.

Also, the legislative oversight on Ministry Development Agencies (MDAs) budgets is weak. Similarly, the civil society is weak in researching and scrutinizing government fiscal operations and related budgetary matters. The capability of the government and civil society in monitoring public finance needs to be enhanced.

The absorptive capacity at the sub-national level is low that the funds allocated do not impact positively in the short term. From the findings education on average utilizes 44% of the total CDF allocations in the sampled districts. On average it takes 17 years or more to educate a child from primary level to tertiary level for him/her to be ready for employment.

The impacts of the funds
All the funds show an increase in the amount allocated over time, which cumulatively should have a positive impact in the fight against poverty and inequality. In the financial records, allocation regulations have been followed, although the implementation of these budgets is not satisfactory. For example, there are anomalies in procurement procedures (such as in Galole CDF health center) with fraudulent cost variations, construction of sub-standard structures, alleged bribery in procurement of materials and contractors, unequal sectoral percentage allocations and poor prioritization.

The study established that 64% of the respondents were in agreement that infrastructure has notably improved through LATF funds. For example, markets are better equipped with sanitation facilities, slaughterhouses, health facilities and water projects. 6% attributed the clearance of council debts and timeliness in paying staff salaries to the existence of the fund. Another 6% of the respondents were convinced that there is better public participation in decision making especially with the use of public meetings (barazas) in discussing community projects while a further 6% credits LATF for creating employment opportunities to the local community. 18% of the respondents felt little or no impact because they lack information regarding the funds.

In addition, 25% of the respondents acknowledged that health services have improved, due to the construction of health centers in previously neglected areas and acquisition of ambulances. 17.5% recognized increased enrolment, retention and completion of school by students due to construction of classrooms, laboratories, desks, as well as supporting and equipping youth polytechnics. 25% noted an improvement in service delivery where with communities benefiting from access to water and irrigation projects by CDF especially in ASAL. There is, however, concern over prioritization of projects in that some regions and sectors are still neglected.

The study also established that 78% of the respondents acknowledged better health facilities and services compared to previous years, while 11% felt there has been positive change in terms of restructuring and infrastructure development in health and sanitation. 46% of the respondents felt that there has been an improvement in the socio-economic status of communities through agriculture/livestock funding in the districts while 18% felt that there has been diversification of the agricultural sector activities to incorporate crop and livestock farming and increased community participation in farming and livestock production. 6% noted that the funds assisted in restocking livestock after drought, and the remaining 6% noted no impact. Conversely, 11% felt that there has been no impact to be noted.

Policy Recommendations
Based on the study findings the following interventions that target line ministry budgets, CDF, LATF and CBF are recommended:

1. Establishing efficient and adequate communication channels to enlighten local communities on the objectives of each fund. District and constituency information centers should be set-up where information on projects and funding details can be disseminated and shared. The district and constituency information offices should be principal in providing information on devolved funds and line ministry budgets. Websites highlighting district project development should be established to enable the public to follow up project progress.
2. Continuous capacity building for community social audit groups and other members, on planning and priority setting, budgeting, administration and effective supervision, monitoring and evaluation should be set up at the community level. Also, communities should be trained on fundraising to supplement government budgets.
3. Equity in fund allocation and participation of stakeholders in identifying projects at the local level should be done to integrate interests, activities and strategies of donor, private sector and NGOs within the district. This calls for restructuring the district fund committees to allow joint planning, budgeting, supervision, monitoring and evaluation of the district development projects. The recent initiative in the health sector of the district stakeholders' forum in Kuria district and the Narok County Council is a move in the right direction as it allows stakeholder participation.
4. There should be transparent criteria for selecting funds committee members. This should be merit-based with minimum qualifications being first degree or equivalent. Committee members should demonstrate competence, integrity, ethics, governance and accountability skills, and strategic leadership. Project funds should be audited frequently in liaison with community social audit teams, and the audit findings made public.
5. A single unit of development should be established at the local level to handle all the budgets. All devolved funds plus line ministry funds for the districts/constituencies should be consolidated to ensure consistency and harmony in the project implementation.
6. The district fund offices should be equipped and properly staffed to improve their capacity to deliver quality services.
7. The structuring of fund utilization should factor in cultural/ traditional practices such as nomadic lifestyles to ensure that men and women have equally participate in the project implementation.