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.