PACAC report on Kids Company: More lessons to be learnt

Today’s publication of the Public Administration and Constitutional Affairs Committee’s (PACAC) report on the collapse of Kids Company marks the latest chapter in the Kids Company story.

The Committee rightly emphasizes the anomalous nature of Kids Company, not only with regards to its grant relationship with government but also its governance and financial oversight. As our members well know, and as explained previously in Karl’s blog, this charity was in no way representative of the rest of our sector.

Next will be the outcome of the Charity Commission’s statutory inquiry, but in the meantime I’ll briefly look at PACAC’s key findings for trustees, the Charity Commission and Government.

Lessons for trustees

The Committee’s conclusion is that the trustees of Kids Company failed to protect the interests of the charity and its beneficiaries, despite their statutory responsibility to do so.

The importance of good governance has already been highlighted in previous blogs by Karl and Myles.

This report is another stark reminder that one of the most important roles of trustees is to demonstrate leadership, judgement and a willingness to challenge assumptions. As the Charity Commission’s guidance to trustees already warns, trustees should not allow their judgement to be swayed by personal prejudices or dominant personalities.

Lessons for the Charity Commission

The Committee clearly questions the Charity Commission’s ability to discharge its statutory duties to prevent, detect and tackle abuse and mismanagement in charities.

The Committee underlines the importance of the Commission making its own judgement about a charity, rather than relying on government engagement as indication of a charity’s good governance or effectiveness. This is sound, of course, but it is not clear whether this was a factor in the Charity Commission’s judgements – we expect to know more when their statutory inquiry findings are published.

Although trustees have ultimate responsibility for ensuring that their charity has a responsible approach to reserves, the Charity Commission is urged by the Committee to do more to make trustees aware of their responsibilities. Last week the Commission announced that it has updated its guidance on managing a charity’s finances (CC12) and on building reserves (CC19). Although some have criticised the increased focus on the risk of unplanned closure and the new emphasis on trustees to justify at length their approach to reserves.

Lessons for Government

The harshest criticism is directed at Government, for its decision to keep providing substantial funding despite due diligence checks indicating the risks.

The Committee’s most important recommendation echoes the Public Accounts Committee’s recommendation that, if the Government decides to use special powers to grant funding, it should provide a transparent case for its decision and report regularly on the use of these powers.

Government has already taken steps in this direction, by starting to develop what is being called the Government Grants Information System (GGIS).

And lessons for us all

Despite its anomalous situation, Kids Company is likely to be used for years to come as a lesson for all.

But it is also important to remind ourselves that hard cases make bad law. Some of the Committee’s recommendations appear to be a kneejerk reaction to this case, and therefore risk creating overly burdensome and even unworkable regulation. For example, the recommendation that regulators such as Ofsted and the Care Quality Commission should assume responsibility of the statutory regulation of charities who have safeguarding responsibilities for children or vulnerable adults raises a number of questions. While many children charity services (be they children’s centres, nurseries, foster care or adoption agencies and children’s homes) are already Ofsted inspected, the suggestion that any charity working with children should become subject to actual Ofsted Inspections raises both some very significant definitional issues, as well as workability issues for Ofsted itself. After all, there are considerably more charities with children as their beneficiaries than schools (over 37,000), as highlighted in the Children’s Partnership almanac.

The answer is not to impose new regulation but to ensure charities and their trustees have the skills and knowledge to meet existing requirements. In this sense, Kids Company is a good example: its failure is not due to the absence of necessary checks and procedures, but to the fact that these were either not followed or were blatantly disregarded.

 

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Elizabeth Chamberlain Elizabeth is head of policy and public services at NCVO. She has been part of the policy team since 2008, as the expert on charity law and regulation. Her policy interests also include charity campaigning, the sector’s independence, transparency, and accountability.

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