Kids Company: learning the lessons for charity funding

4 Feb 16

The collapse of Kids Company shows why scrutiny of public funding for charities needs to improve. The government’s role must be to encourage better, more sustainable organisations into the future

This week’s parliamentary report into the collapse of the charity Kids Company catalogued how badly things had gone wrong there. For all the investigations and press stories, this boiled down to two key things: weak finances and poor governance. But government too was deeply embroiled in the sorry story.

It is increasingly clear that Kids Company represents a worst-case scenario for what can happen when charities don’t look after essential duties. Evidently, it had been in an unstable condition for many years.

Its balance sheet was a mess, and should have inspired nervousness in anyone looking though the figures. The reserves were very thin at the best of times, and in some years were non-existent. Last-minute bailouts, either from government or from private philanthropists, were required over and over again. Inevitably, the charity was wide open to problems if that funding didn’t materialise.

This is a worrying enough state of affairs on its own, but Kids Company also seems to have suffered from a lack of serious scrutiny. The founding chief executive and the chair of trustees had both been in place, unchanged since the day the charity opened. External advice, especially if it was critical, was not acted upon and good data on the impact of the charity in really transforming the lives of young people was just not available: heads appear to have been firmly in the sand. It cannot have helped that ministers did indeed seem to be ready to hand over cash to the charity whatever the qualms of their civil servants.

As usual when this sort of scandal breaks, the government has taken swift steps to at least be seen to correct some of the flaws in the system.

There will now be a central database of large public grants made to charities, so that Whitehall departments can share information more easily. Much more controversially, extra powers are being proposed for the Charity Commission to bar some people from sitting on charity boards. Monday’s report by the public administration and constitutional affairs select committee explicitly suggested that that could include some Kids Company trustees.

But there are other, more effective options.

While worrying about scrutiny of public funding is relatively new to officials and ministers dealing with charities, their colleagues at other departments will have had to think about it for years. At the old Department of Trade and Industry, where I was a special advisor under the last Labour government, there were well-defined hurdles before anyone could give out public grants to private firms.

You would need to be able to confirm, for example, that the firm was in decent shape, with sustainable finances. And independent advice on the wisdom of any grant was taken to avoid any risk that the government might appear to showing favouritism to one firm over another.

Versions of both these issues were raised, belatedly, in reference to Kids Company: the parliamentary report wonders, unsurprisingly, why ministers carried on funding a charity with such precarious finances; and an earlier NAO report voiced fears about apparently favourable treatment to Kids Company which wasn’t available to other charities. 

It is time for a similar system to assess big charity grants. Get an independent specialist to look over a charity’s impact data – the best indication of what they are achieving for the beneficiaries – and examine the books. When a report on this goes back to the minister, it should be published, so that the basis for future funding decisions are clear to see.

The benefits would be threefold. Before any money is agreed, those charities best able to prove their impact would be in a strongest position to get government cash to continue that work – and those that could not would need to sharpen up. Ministers could decide on funding with more confidence that the right questions have been asked before money goes out the door. And charity beneficiaries would, hopefully, be the big winners, with the effective programmes identified for government grants so they could be maintained or even scaled-up to help more people.

The parliamentary report into Kids Company is keen to praise the charity for some of its work. It supported children who often fall completely under the radar of local authorities and even other charities. It was unstinting in promoting its central message: ‘that children and young people must be valued, trusted and supported with compassion’.

But it was also, as the report makes clear, very badly run. For many years, Kids Company existed on the brink of financial disaster, despite the injection of more than £40m of public money over the years, money that could have made such a difference in many other charities. When it fell, it fell quickly.

Many of the lessons of Kids Company are for trustees. But government’s role from here must be to encourage better, more sustainable charities into the future.

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