Three reasons why Kids Company’s funding was unusual

This morning brings the latest instalment in the long autopsy of Kids Company. The National Audit Office has published a thorough and eyebrow-raising analysis of government funding of the charity, particularly by the Cabinet Office and Department for Education.

Karl has already written about how unusual Kids Company was and this report provides further evidence. Three elements in particular struck me as uncommon, if not unique.

Scale

Government grant-giving peaked in 2003/04 at £6bn and has since fallen by almost two-thirds to just £2.2bn. Yet, Kids Company was able to secure £42m in grants. From 2008 onwards it consistently received roughly £4m a year. This is a lot in absolute terms but the scale only becomes clear when compared to other organisations.

In 2008, the Department for Education awarded Youth Sector Development Grant funding to 43 organisations. Kids Company was awarded £8m over two years, 20% of the entire grant pot. In 2011, the charity secured almost £9m over two years from the Voluntary and Community Sector Transitions Grant: twice as much as any other organisation. To put this in perspective, in 2011 the Cabinet Office launched a transition fund for the entire charity sector which was worth £100m.

Form and source

In the financial year 2000/2001, grants accounted for around 50% of the voluntary sector’s statutory income, but this has since fallen to less than 20%, with the vast majority of government income now coming through contracts. Yet, every penny of the £42m which Kids Company received from central government was through a grant. The only government contract it won was with Bristol City Council, though this was terminated in 2015 as Kids Company had failed to achieve registered provider status.

It is also notable that almost all of the charity’s government income came from central, rather than local government. This contrasts with the voluntary sector as a whole which receives 52% of its statutory income from local government and 42% from central government (the rest coming from international sources).

Approach

According to the NAO report, Kids Company reported difficulties winning contracts, citing shortages of local authority funds and changes in local government. But why did Kids Company struggle to win local government contracts when it was so good at securing central government grants? The answer, I think, lies in the charity’s unique approach to statutory funding.

The NAO identifies a consistent behaviour pattern every time Kids Company’s funding was coming to an end.

  1. Lobby for new money
  2. If resistance was met, warn ministers about redundancies and the impact of service closure and make the same points in the media
  3. Ministers would ask officials to review funding decisions
  4. Grant would be awarded

Every charity will try to use its influence to secure funding to support those in need. However, Kids Company appears to have used its influence to virtually blackmail the government. And what’s worse is that it worked.

It seems that Kids Company, through its influence in the media and with ministers, effectively exempted itself from the normal competitive procedures that govern the award of statutory funding. In 2013, it failed to win funding through the normal Department for Education process due to being judged poor value for money. Yet, within weeks, five government departments came together to provide it with £9m over two years anyway.

Bidding for government funding, particularly contracts, is often difficult and onerous, particularly for smaller charities. Repeated success requires the development of commercial skills and robust internal management processes. Kids Company failed to develop these despite staff from the Department for Education and Department of Work and Pensions being seconded over to support them. Rather than strong arming ministers, every other charity that receives anything like the amount that Kids Company did will have done so on the basis of detailed funding applications, evidence of the difference they make and robust value-for-money assessments.

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Nick Davies Nick was NCVO's public services manager until March 2017. He is also a trustee of the South London Relief in Sickness Fund.

14 Responses to Three reasons why Kids Company’s funding was unusual

  1. Jim Simpson says:

    It is sad to see NCVO join political bully-boys and accuse Kids Company or strong arming government and blackmailing Government. This debacle showed a failure of public administration perhaps but no failings in Kids company’s approach have been shown. The idea that one charity can blackmail the government is naive and shows a peculiar willingness for NCVO to back the fees of maverick government voices rather than robustly challenge poor regulation.

    • Nick Davies Nick Davies says:

      Thanks for your comment. I don’t think Kids Company’s approach failed. Quite the opposite. It was very successful, over a long period of time, in securing huge government grants. That it was so successful, despite concerns repeatedly being raised by officials, must, I think, be explained by its high media profile and ability to put pressure on ministers.

      It is, of course, quite right that charities should use their profile to advocate on behalf of their service users. My concern is that Kids Company, due to its profile, was able to subvert the normal process for assessing bids, securing funding that may have been better used by other, less well known, organisations. That it was able to do so, repeatedly, raises serious questions for the ministers involved.

      • Paul Halfpenny says:

        “I don’t think Kids Company’s approach failed. Quite the opposite. It was very successful, over a long period of time, in securing huge government grants.”

        Sarcasm or not, that’s the problem that the charitable sector now faces. CB was very successful at securing grants, and that defines “success” for the vast majority of charities it seems. As we’d all acknowledge, success for a charity should be defined by how much good they do,not how much maoney they raise. But there is no link between the ability to fundraise and the impact created.

        Yet here was an organisation which, apparently, had iro 600 staff at time of closure, “95%” of whom were, according to CB at the PACAC, clinical staff. Yet the organisation only had 2000 clients. That’s a heck of a therapist to client ratio. Surely amazing things must have been achieved with what must have been a tremendously excluded and difficult client group? And yet we still don’t know what good was done.

        And to my mind, here’s the really problematic part of this for the charity sector. Because when they closed it seems that they had hugely over-exaggerated their client base, and are completely opaque about the actual benefit they created, (Jobs? Education? Apprenticeships? Reduction in offending? etc etc), and at the same time – we don’t know how long this state of affairs was going on. And we don’t know how long it would have carried on if she hadn’t overplayed her hand. Because there was nothing in the charity sector to stop it over the last number of years – and there was nothing likely to stop it if the government hadn’t pulled the plug. Even now the sector commentators are trying to make the case that Kids Company was an anomaly – but surely the actual issue is – how would you know if it was an anomaly or not? No-one challenged them when they operated because no-one cared whether they were actually any good – or was able to make that assessment – only that they were raising lots of money (and by charitythink default, they must therefore be “doing good”). Only NPC and Pilgrim come out of this with their credibility intact because they put their concerns in writing, if not on record.

        This is a real challenge for the sector, and one which won’t be avoided by trying to portray Kids Company as an aberration. If it was an aberration then someone other than the Spectator, Buzzfeed or the BBC should have drawn attention to it. Someone in the charity sector should have said “these don’t represent us”. Instead, as you’ve written yourself, they were a success, because they could raise funds.

  2. Nick Taylor says:

    I despair of what Kids Company may mean for many charities. I dread to think of the ‘grandstanding’ that is to come on Monday and the further coverage this will receive. Then there is the Charity Commission review, the start-up of the 1-Up Foundation and how this will all leave public and media perception.

    But, mainly, I worry about the relationship between charities and politicians as whilst I accept the public procurement steps you set out, the relationships that have to be built and the chance to take new ideas or issues to Government outside of a process is a necessary part of a progressive change. This is not ‘strong-arming’ but trying to get Government to fund and develop charities in a positive way that has benefits for beneficiaries and society at large. Now, every time I write to or meet a Minister or indeed, talk money it will be seen as some dubious practice and officials will be whispering in the ear.

    How on earth Kids Company got away with what they did is beyond belief – as a much smaller charity (we turn over 600k per anum) we are put through hoops to gain grants and justify them against outcomes and outputs. And I am afraid their CEO and Founder being chauffeur driven to TV and radio studios to defend these antics is unedifying.

    There are many matters this throws up. The talk of ‘reserves’ is a distraction in this case. This was not a matter of ‘reserves’ policy, this was fundamental mismanagement. And as for the Trustees, it shows that just being a senior in a big organisation does not make you fit to lead a charity. In big institutionalised organisations you are surrounded by a team and cosseted from such matters as this.

    I hope the lessons are learned and somehow we as a sector can bounce back from yet another knock to our reputation.

    • William Chapman says:

      Notwithstanding the inexplicable (to date) level of support given by Govt departments despite warnings being issued; the bottom line here is that the Founder, Chair and Trustees clearly didn’t have any idea of their responsibilities. And that includes how to manage the finances of a charity (or company). This appears to include ‘unprofessionally kept’ accounts and allowing cash to be handed in envelopes to vulnerable kids!
      The whole story reeks of incompetence and if we ever find out what happened to the rest of the money I wouldn’t be surprised if others were on the gravy train too.

  3. The two Nicks are right.

    As charities we can’t have organisations like Kids Company bringing the sector into disrepute by virtue of its failures. The NAO report is fair and reasonable and should be welcomed.

  4. Tony Smith says:

    Like Nick, above, we are also a struggling small charity running almost entirely on volunteers. We find it obscene to read of the financial debacle surrounding Kids Company and particularly the flambouant CEO that used Charity money to be conveyed in style around London. A bicycle may have been quicker amongst London traffic though I doubt she is even capable of riding a bike. Though to be fair she would not need to wear a reflective jacket!
    Yes, us smaller charities plod along raising funds the hard way with no remuneration. I sometimes stop chuggers in the street and ask them if they are being paid and certainly, yes, some of the larger, well-known charities do pay their chuggers and I then say, if I put £10 into your box, how much actually goes to the charitable cause. Sad to say that some of these larger charities have a very poor ratio between admin finances and actual charitable benefits. Indeed, if you researched this you would be shocked!
    Sometimes I have local visitors to my charity saying, “Oh, I donate to “X””(a large natiuonal charity). They seem completely brain-washed by media ads. They have no idea that most of what they donate goes on admin, whereas if they donated to their local charity on their doorstep that has a similar charitable instrument, ALL their donation would go to the cause for which they are concerned.

  5. Terry walsh says:

    The lesson from this that I would pass on to all charity trustees, is whether or not you have a very dominant & over-enthusiastic chairman or CEO, don’t forget that as a trustee, it’s YOUR reputation that’s always on the line!
    (Your credibility & reputation is why a charity wants you on board!)
    Do you want to destroy what you’ve spent years building? For example, who now (rightly or wrongly) would trust a kids company trustee?

  6. Karen Adams says:

    I think it’s reflecting badly on politicians. Gullible and undiscerning.

  7. Mary says:

    I manage a small charity in Elland, near Halifax West Yorkshire and read yesterday with dismay the appalling huge amounts of funding given from Central Government to Kids Company over the last 10 years. We struggle from day to day to keep our charity and enterprise running for the sake of our clients and customers. We have never been able to raise more than £25,000 per year in single bids. In a year we work with well over a thousand people in one way or another who are ex offenders or stuck in the cycle of addiction. We I believe are one of the ‘typical charity’ types you mention and we have to work so hard to just exist. How £250,000 would help us provide jobs and expand our business. The Daily Mail ran an article yesterday on the £’s given out to various places. Let me tell you we don’t fall anywhere near the supposed charities they are talking about.
    Shocked and I agree with Tony its obscene and an injustice.
    Mary

  8. Christine Parapia says:

    How I agree with nearly all the comments so far. We are a small local charity working with children and young people with disabilities in the Leeds area. We operate on a shoe string with only 14 hours per week paid to our part time workers in total. Its a constant battle to obtain funding and it feels like we are on a treadmill from which there is no escape to support our projects which are hugely popular locally and always oversubscribed. Much of the part time hours are frustratingly spent on raising funds which need alot of detail and are often repetitious. Also local authority funding is always paid substantially in arrears so we have to spend in advance to secure equpment activities etc and then wait sometimes three months to be paid. This leads to cash flow problems when you are a small organisation

  9. John Wilks says:

    The mind boggles at the sums given and what almost seems like no questions asked. I haven’t read the ins and outs of this saga, but the one item that stands out as rank foolishness is handing envelopes of cash to teenagers. Any parent having gone through the teenage years with their youngsters will be shaking their heads [as a minimum].
    The Trustees certainly have questions to answer.

  10. John Hepburn says:

    It’s instructive to look at KC’s last annual report on the Charity Commission website. In contrast to the basic and unadorned reports most charity’s submit this is a fancy full colour magazine with lots of grand claims. It’s quite the opposite of what Companies House says you should submit. Style over substance, perhaps.

  11. Hassan Vahib says:

    Whilst it is impossible not to agree with some of the comments, as long as they are constructive and non personal, as a sector we ought to be looking at what lessons are to be learned from this. We also need to look and ask questions as to what really has happened here and why NOW?

    I remember not long ago the ‘charity’ sector was again receiving negative publicity as to the they ‘THEY’ solicit money from members of the public…… It seems to me that someone somewhere has an agenda here, call me paranoid but the ‘agenda is out to undermine all the good work carried out by the sector, in particular those small charities and not-for-profit Organisations who are doing so much with so little, and who deserve every penny given to them….. Someone somewhere ‘perhaps not too far from the Big Ben’ wants further cuts and certainly no new money for this sector…… Bottom line, don’t fall for this trap, the Charity sector would not be in such demand if those with and without wigs got their priorities right and rather than spending so much fighting ‘weapons of mass destruction’ they supported the one sector whose mission and purpose is to try and bridge the gap between those that have and those that certainly do not have…….