COMMONS

The collapse of Kids Company: extraordinary catalogue of failures

01 February 2016

The Public Administration and Constitutional Affairs Committee (PACAC) find that while ultimate responsibility lies with the charity’s "negligent" trustees, Government and regulators such as the Charity Commission must also learn lessons from this failure.

Background

The report re-iterates the core message of PACAC’s recent report into fundraising in the charitable sector (PDF 638KB): that ultimate responsibility for every aspect of governance – including the financial and reputational stability of an organisation – rests with Trustees.

The charity's Board of Trustees failed to protect the long-term needs of the charity’s beneficiaries. Throughout Kids Company's 19 year existence, the Board ignored repeated warnings about the charity's financial health, failed to provide robust evidence of the charity's outcomes, and did not adequately address increasing concerns about the suitability of its programmes and behaviours of its staff.

The Trustees' negligent financial management rendered the charity unable to survive the predicted reduction in donations following the emergence of allegations of sexual abuse. Its closure left many vulnerable beneficiaries without an important source of support.

Chair's comments

Bernard Jenkin MP, Chair of the Committee, said:

"In the course of this inquiry the Committee has heard what can only be described as an extraordinary catalogue of failures of governance and control at every level: trustees, auditors, inspectors, regulators and Government. The Committee has heard many positive accounts of the valuable work Kids Company did with some very vulnerable clients, and of employees who were inspired and motivated by the quality of support they could deliver to young people. This makes the Board's failure to ensure the charity's sustainability all the more tragic. There has been a litany of allegations of inappropriate "therapies", lavish spending and abuse of power within the organisation, and we hope that this episode highlights to all trustees that protecting the reputation of an organisation is a core element of good governance. To execute this, trustees must ensure they have the breadth of knowledge and experience necessary to understand their charity's business.

Despite lacking robust evidence about the quality of the charity's outcomes, value for money or governance, Kids Company attracted high profile support from senior Ministers throughout successive Governments, and tens of millions of pounds of public money have been handed to the charity over the course of its existence.  Government and regulators must learn from this. Proper mechanisms must be put in place to allow dispassionate, transparent, accountable decisions to be made about charity funding and regulation in the future.   

There appears to have been a catastrophic confluence of factors that have conspired to allow this charity to operate as it did, for as long as it did. I fear the repercussions of this episode are far from played out, but one of them must be a radical change in our approach to charity regulation at every level. When this level of public funding is involved, Government must have the skills and expertise to assess and hold funding recipients to account itself, and the Charity Commission must have the powers and resources to visibly, proactively investigate and tackle mismanagement."

Report Summary

The report makes a series of recommendations for concrete change in the way Government and the Charity Commission interact with and audit charities. 

Trustees

Primary responsibility for Kids Company's collapse rests with the charity's Trustees who failed in their statutory duty to protect the interests of the charity and its beneficiaries in the long-term. Trustees relied upon wishful thinking and false optimism and became inured to the precariousness of the charity's financial situation, despite repeated warnings from the charity's auditors. Whether the final allegations which led to its closure 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 upon the funding stream.

There have been extraordinary accounts of luxury items and holidays or spa days being lavished on "Camila’s kids", a favoured group of clients. Such expenditure diverted charitable funds from other projects and programmes that had the potential to provide more long-term and effective support to a wider group of young people. A lack of experience of youth services amongst Trustees made it impossible for the Board to assess the appropriateness of significant expenditure justified on therapeutic grounds. It is extraordinary that Trustees were content to accept this without more rigorous examination.

Government

Several Ministers authorised unorthodox payments despite auditors’ warnings about the charity’s model and the state of its finances, and against official advice. By continuing to fund the charity's cash flow crises, successive Governments gave tacit approval to an unsustainable and inadequate business model and eroded any incentive for Kids Company to address its own governance and management failings.

Ms Batmanghelidjh and Kids Company appeared to captivate some of the most senior political figures in the land, by the force of the Chief Executive's personality as much as by the spin and profile she generated for the charity. As a consequence, objective judgements about Kids Company were set aside and the Government's relationship with Kids Company was forged outside the usual decision-making processes of Whitehall departments. There is little doubt that the high profile support of senior Ministers for Kids Company had an impact upon decision-making across Whitehall. It is also a matter of considerable concern that knowledge of the high-level political patronage enjoyed by Kids Company may have deterred individuals from coming forward with concerns about the charity. 

It is unacceptable that successive Ministers appear to have released funds on the basis of little more than their relationship with a charismatic leader, small-scale studies and anecdotes, and no more than two visits made by Mr Letwin more than 10 years previously. This approach has been proved to be an unjustifiable way to conduct Government business and to handle public money.

Charity Commission

It is the role of Trustees, not the regulator, to ensure that a charity is well run. However, if the Charity Commission is to maintain public faith in charities it must have the resources and powers to advise and investigate charities and deliver on its statutory duty to prevent, detect and tackle mismanagement in charities.

A number of witnesses who had grave concerns about the charity did not alert the Charity Commission: the Commission projects too limited a public profile to provide much reassurance about charities and their regulation, and to attract complaints. 

Further information

Image: PA

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