Charity Commission’s Kids Company report contains important lessons for the sector

The Charity Commission has made a formal finding of mismanagement following the completion of its inquiry into the collapse of Kids Company.

Earlier this month, the Charity Commission outlined the findings from its inquiry. It explained that the charity had been operating a ’high-risk business model’, rapidly expanding its operations, yet lacking a secure stream of income to support these, all while it had low reserves.

The report highlighted concerns around:

1. Delayed action to address financial and operational risks:
   The report found that the trustees were aware of the risks associated with the operating model and they should have acted sooner to improve the financial position of the charity.
2. Records of decision making, specifically in relation to direct spending on beneficiaries:
   Some of the charity’s records were destroyed at the time of collapse, whilst others appear not to have been made in the first place.
3. Leadership factors:
   The board was found to lack expertise in the field of psychotherapy and youth work, potentially limiting its ability to challenge executive decisions.The charity’s founder and CEO had been in post since 1993 and the chair had served since 2003. The report notes that ’rotation amongst a charity’s trustees allows for an injection of new ideas and approaches and for challenges to the way in which the charity operates’.

Helen Stephenson, Chief Executive of the Charity Commission, said:

“We found that the charity’s operations and finances made the charity – and by extension its beneficiaries – more vulnerable to decisions of individual grant-makers and donors. The charity’s repeated failure to pay creditors, including its own workers and HMRC, on time, was mismanagement.”

Helen Wilkie, a Director in the Charities and Not-for-Profit Team at Saffery commented:

“The collapse of Kids Company was a high-profile and rare case. However, there are clear lessons to be learned for charities and the wider sector. Amongst other things, it demonstrates the importance of robust, effective governance. Trustees need to offer appropriate challenge and to hold themselves to account. Using the Charity Governance Code to evaluate practice at your charity could help to kickstart an important conversation, giving you confidence in what you do well and helping to identify areas of focus that will enable you to make an even bigger difference going forward.”