The role of the Charity Commission in the closure of Kids Company

Charities currently face a range of very difficult challenges: funding cuts, digitisation of services, and according to the Chair of the Charity Commission, fraud and Islamic terrorism.  In such a turbulent atmosphere the dramatic demise of Kids Company has thrown a spotlight on a number of issues with the potential to affect hundreds of voluntary organisations.  Here, I will focus on just one. The responsibility of the regulator.

The Charity Commission had several year’s annual reports which showed that for a long time the financial management of Kids Company was, to put it mildly, inadequate. Although the headline income figure grew, reserves remained perilously low, and warnings to this effect were not acted upon.  Despite this intelligence being openly available on its website, the Commission did nothing.

When I raised the matter in a question this week, I received almost immediately a lengthy response from the Commission which states. “It is not the Commission's role to save charities in financial distress or failing organisations from collapse.  Indeed, we are statutorily prohibited from acting in the administration of charities and it is the responsibility of trustees to protect them and their assets. Trustees carry full legal responsibility for their charities, no matter how large they are or how many senior executives they employ. It is when there is mismanagement or misconduct that we can and do get involved.”

This argument is technically correct, familiar and deeply dispiriting. It is the same defence as that use by the Financial Services Authority to explain its failure to foresee the collapse of Northern Rock. The conduct of the FSA was described by the Treasury Select Committee in 2008 as “a systematic failure of duty”. The FSA was deemed unfit for purpose and replaced by the Financial Conduct Authority in 2013 which has the responsibility “to tackle major problems much earlier”.  Today, the FCA, with a new leadership and ethos, works with the financial sector to develop good practice and troubleshoot. It is not perfect, but it is far more effective than its predecessor.

The Charity Commission’s priorities are “to develop:

• public confidence in the charity sector
• the sector’s compliance and accountability
• the self-reliance of individual charities”.

Well it won’t if it sticks to a strategy of waiting for disasters to happen and then apportioning blame unto others. 

What it should be doing, as a matter of urgency, is working with organisations in the sector to develop indicators which warn of impending trouble. It should put together advice for trustees about how to foresee and manage risk. Furthermore, the Commission, as part of its own digitisation programme, should be working out how to make the information which it collects more manageable and meaningful.

Kids Company hit the headlines, and whilst most charities are well run, others might follow.  Donors and beneficiaries of charities, and the public, should expect the highest standards of management and regulation. The majority of charities, under more detailed scrutiny than ever, are rising to the challenge. Like the FCA, the Charity Commission should do likewise.