The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall Contents

Summary

Founded in 1996 by Camila Batmanghelidjh, Keeping Kids Company (commonly known as “Kids Company”) was a registered charity which stated that its aim was to provide practical, emotional and educational support to vulnerable children and young people. It claimed to support “some 36,000 children, young people and vulnerable adults”.1 Over the course of its existence, successive Governments have provided Kids Company with grants of at least £42m. The charity closed on 5 August 2015, following the launch of a police investigation into allegations of sexual abuse at the charity. The allegations emerged on the same day that £3 million of taxpayers’ money, released by Government ministers and intended to enable an emergency restructure, arrived in Kids Company’s bank account. The Government is currently seeking to reclaim these funds from the Official Receiver.

Primary responsibility for Kids Company’s collapse rests with the charity’s Trustees. Whether these allegations prove true or malicious, if the Trustees had not allowed the charity’s weak financial position to persist for so long, Kids Company would not have been so vulnerable to the impact of the allegations. The Board failed to protect the interests of the charity and its beneficiaries, despite its statutory responsibility to do so. Trustees repeatedly ignored auditors’ clear warnings about Kids Company’s precarious finances. This negligent financial management rendered the charity incapable of surviving any variance in its funding stream; when allegations of sexual misconduct emerged in July 2015 and threatened to impede fundraising, the charity was obliged to close immediately.

The Charity Commission’s guidance requires Trustees to “make decisions solely in the charity’s interests, so they shouldn’t allow their judgement to be swayed by personal prejudices or dominant personalities”.2 Kids Company’s Board of Trustees lacked the experience of youth services or psychotherapy necessary to interrogate the decisions of the Founder-Chief Executive. This approach left the Trustees unable to defend the reputation of Kids Company and thus to discharge a prime obligation of the good governance and leadership of any organisation. It is essential that Trustees of all charities ensure that some members of the Board have experience of the area relevant to the charity’s activities, in addition to the necessary skills, and that all Trustees have the appropriate attitude towards responsible governance.

While responsibility for governance rests with a charity’s Trustees, the Charity Commission’s ability to discharge its statutory duties to prevent, detect and tackle abuse and mismanagement in charities is currently undermined by limits in its powers and resources. Government must address these shortcomings to ensure that the Charity Commission can effectively regulate charities and maintain public confidence in the sector. The Charity Commission must work more closely with Government departments which are funding charities, improve its ability to identify problems in high profile charities, and become more responsive to concerns raised and more able to take action. This is particularly important in respect of charities with a responsibility for safeguarding vulnerable people and which are facing difficulties.

Kids Company enjoyed unique, privileged and significant access to senior Ministers and Prime Minsters throughout successive administrations. This high-profile support provided a context for decision making across Whitehall. Disjointed and limited reviews and assessments, often carried out or commissioned by Kids Company itself, were read selectively by successive Governments to confirm a pre-existing and positive impression of the charity and justify future funding. Despite a lack of sufficient evidence about the effectiveness of Kids Company’s interventions, an increasingly controversial reputation and clear signs of financial mismanagement, successive Governments failed to carry out adequate due diligence and the charity was given over £42m of funding from central Government and was released from the competitive processes to which other charities are subject. Between 2013 and 2015, the Government released almost £17m through direct, non-competitive grants. This approach is condemned by the fact of Kids Company’s failure and is therefore unjustifiable in future.

When deciding whether to hand over taxpayers’ money to charities, Ministers and Government departments must carry out due diligence using proven methods of assessment before exercising objective judgement. Ministers should not override, or risk creating the perception that they are overriding, official advice to hand over funding for charities on the basis of personal prejudice or political considerations. Ministers should not allow charity representatives to exploit their access to Government in a way that may be unethical.

This unconventional relationship and the lack of a proper funding process have left successive Governments vulnerable to misunderstandings - wilful or otherwise - on the part of the charity about the level of Government support that Kids Company could expect to receive in the future. As demonstrated by the charity’s collapse, the approach of successive Governments and Ministers towards Kids Company has proved to be an improper way to conduct Government business or handle public money.

Kids Company did provide valuable support to many vulnerable young people, albeit the evidence shows that this was on a considerably smaller scale than it claimed in its publications and annual reports. The failures in governance that led to the collapse of the charity should not detract from the commitment and hard work of many highly dedicated individuals who worked in the organisation. The charity’s consistent message, that vulnerable children and young people must be supported with compassion and personalised care, must not be lost with the collapse of Kids Company and criticisms about the appropriateness and effectiveness of some of its methods.




© Parliamentary copyright 2015

Prepared 28 January 2016