What was Kids Company?
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”.
What happened to Kids Company?
Over the course of its existence, successive UK Governments 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.
An official report published in 2022 found that Kids Company operated a “high risk business model”, characterised by a heavy dependence on grants and donations, reliance on a key individual for fundraising, low reserves, and a demand-led service. The Charity Commission for England & Wales made a formal finding of “mismanagement in the administration of the charity” over its repeated failure to pay creditors, including its own workers and HMRC, on time. In 2021 the Official Receiver was unsuccessful in its attempt to disqualify the charity’s trustees and CEO as company directors. The Commission agreed with it that there was no dishonesty, bad faith, or inappropriate personal gain in the operation of the charity.
The report finds the charity operated a high-risk business model, having rapidly expanded its operations. The report finds the trustees allowed expenditure to increase without a secure stream of income to cover increased costs or mitigate an unexpected fall in fundraising. Combined with the low level of reserves, this approach, unusual for a charity of its size, made Kids Company vulnerable to external pressures.
It was found that the trustees were aware of the risks arising from the charity’s operating model for years and had recognised the need to make changes. But the inquiry concluded that they should have acted sooner during the period of the charity’s growth to improve its financial stability, for example by building up reserves, paying off its debts, thereby strengthening its cash flow position, and controlling the rate at which the charity was expanding.
The inquiry highlighted concerns around Kids Company’s records relating to decision-making about direct spending on beneficiaries. Some of the records were destroyed at the time of its collapse. Other records may not have been created in the first place. The inquiry acknowledged that the trustees were not responsible for, and indeed attempted to stop, the destruction of records when they became aware of it happening during the charity’s final days of operation. Nonetheless, the report is clear that the destruction of records fell “below the standards the Commission would expect from a charity”.
Due to the limited material available, there was “insufficient evidence” for the inquiry to be satisfied that the charity’s significant expenditure on a relatively small number of beneficiaries was either justified or in the charity’s best interests. Available records showed that around 25 beneficiaries had spent on them an average of over £1,700 per month between January and July 2014. The Commission noted that, whilst such decisions were within the discretion of trustees to make, the charity might have been able to help a greater number of children had spending on this ‘top 25’ been reduced.
The regulator also found that the charity’s approach to reporting the scale of individuals who benefited from its work – which it reported amounted to 36,000 – could have been more transparent.
The report noted that the board lacked expertise in the field of psychotherapy and youth work, potentially limiting challenge of executive decisions. However, as the High Court highlighted in its judgement the trustees were skilled professionals and had collectively identified the need for the board to be strengthened and diversified, and that at the time the charity closed, a plan was in place to recruit additional trustees with such skills.
The founder CEO had been in post since 1993, and its chair had served since 2003.
The Charity Commission highlights that there are lessons from the collapse of Kids Company for charities, and for the regulator itself, to learn. These include:
- Effective board leadership – the CEO was accountable to the trustees. She had been in the role for 20 years, which may have reduced effectiveness, and led to a power imbalance.
- Managing risks associated with innovative approaches
- Planning reserves – trustees should undertake financial planning and recording including maintaining a reserves policy.
- Managing growth – charities should ensure infrastructure, governance and resources keep pace with growth. They should have sustainable income to support their growth and ensure that policies are scaled up to reflect the needs of any expanded or newly introduced beneficiary groups. They must ensure that their governance is robust, ideally with at least one trustee with experience of managing a charity of similar scale on the Board.