What can Whitehall learn from the Kids Company disaster?

Anyone who cares about charities should be appalled at a repeat of the last few months. If the government isn’t thinking about new mechanisms for getting this right in the future, it should start, and fast.

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The NAO’s swift review into Kids Company’s finances, published earlier this week, lays out in cold detail the public money that flowed into the charity over many years.

Driven by fierce—and, one has to say, effective—lobbying by the chief executive Camila Batmanghelidjh, successive governments signed-off well over £40m in funding, the last tranche of which was awarded just days before the charity’s final collapse.

But the numbers aren’t actually the shocking thing.

The cost to government of looking after children in the UK, especially the most vulnerable young people who turned to Kids Company, runs into billions. It’s perfectly sensible that ministers look at routing at least some of this cash to charities. There are plenty of effective organisations out there working with children, and government would be mad not to team up with some of them.

The much bigger problem, it turns out, is how easily questions of effectiveness were sidelined by senior politicians when it came to Kids Company. The money kept flowing, even as officials raised concerns about whether the charity was achieving everything it claimed for its beneficiaries, or had any sort of plan to wean itself off government patronage.

This is where my organisation, New Philanthropy Capital, comes in. In 2006, well before I joined, NPC worked with Kids Company on a short piece of private research, looking at the impact and sustainability of their work. Amid all the recent media attention, that paperwork leaked.

This made public what we’d warned the charity and its trustees at the time: that for all the importance of its work, Kids Company was over-reliant on its chief executive, were struggling to provide evidence about what they were achieving, and were building all this work on some extremely unstable finances.

As an anonymous civil servant told one reporter, NPC’s findings were “depressingly prescient”. The NAO review makes clear that we were not alone. It contains a neat table, showing these and other worries, raised by civil servants at each new approach for funds, along with the final outcome. Bluntly speaking, Kids Company seemed to get the cash regardless: six-figure sums in 2002 and 2003, and then into the millions in 2008, 2013, and twice more this year.

Camila and the charity’s chairman, Alan Yentob, have already been interrogated in parliament about the collapse. Senior civil servants are up next on Monday (before a different committee), and ministers are almost certain to follow shortly after that.

It’s unlikely to be pretty. The government has to make sure it doesn’t get dragged into this sort of mess again.

Before entering the world of charities and think tanks, I was a special advisor in a range of Whitehall departments. This included at the old Department of Trade and Industry, where any minister had to clear some well defined hurdles before public grants could be given out to private firms.

You had to prove that the firm was a decent one with sustainable finances, precisely so that public money wasn’t wasted on a company which fell apart shortly afterwards. You had to find a way to rule out even the perception that the government was showing favouritism to one firm over another. (Intriguingly, concerns about this sort of perception around Kids Company recur in the NAO report too).

It wasn’t perfect. But looking back, it’s clear how important it was that we had a clear system in place.

A lack of clarity around charities is one of the things that has landed us where we are now. Of course charities aim to do good, and they attract passionate people who want to achieve important things. Some even have a hotline to the minister or even Number 10 to make their case. But with so much at stake, and all that public money at stake, there’s no reason why the charity sector should escape the sort of scrutiny we take for granted when government gets involved with helping out private industry.

The same sort of independent assessment for big charity grants would be sensible. Get a specialist in this area to run their eyes over the charity’s impact data, and in-house specialists to investigate the books in detail. When reporting this back to the minister, make the advice open and public.

The best charities will be more likely to get the grants (and the less effective ones will be encouraged to smarten up). Ministerial decisions will have some transparent information behind them. Most importantly, people who rely on charities will benefit from the highest impact organisations getting greater support.

Anyone who cares about charities would be appalled at a repeat of the last few months. If thrgovernment isn’t thinking about new mechanisms for getting this right in the future, it should start, and fast.