The defunct LGBT charity Broken Rainbow had "chaotic" leadership and was living "hand to mouth" for more than a year before its demise, a report by the National Audit Office has concluded.
The report on the funding and governance of the charity, which ran a domestic violence helpline for the LGBT community, concludes an NAO investigation that began in November 2016 after a request made by Bernard Jenkin, chair of the House of Commons Public Administration and Constitutional Affairs Committee, to look into Broken Rainbow’s closure.
The report says Broken Rainbow, which received £1.4m of funding from the Home Office between 2004 and 2016, was operating "hand to mouth" for at least a year before its collapse.
This included having less than £500 in its bank account on most days between April 2015 and its collapse just over a year later.
The report says the Home Office failed to monitor grants to the charity in line with its own recommendations and the charity’s spending exceeded its income for a number of years before its closure.
The charity spent more than half of its Home Office grant, which was paid at intervals of three months, in the first 24 hours after it had received the money and often spent the entire payment within three days of receipt, according to the report. The charity received funding of £120,000 a year from the Home Office from 2010.
Staff costs, consultancy, campaigns and total staff costs were the biggest reasons for the increase in spending, the report says.
The report says that the charity’s reserves shrank by 97 per cent in two years, reaching just £2,307 in the 2014/15 financial year despite a 52 per cent rise in income over the same period.
In the report, the NAO calls the management of the charity "chaotic", says there were few organisational policies in place and many of the policies that had been created were not followed by staff.
Staff were asked to pay for office expenses on personal credit cards and conflicts of interest and grievance procedures were not managed correctly, the report says.
The report adds that the list of directors in the charity’s annual report included people who were not registered directors, but says the pursuit by Companies House of outstanding information from the charity "probably led to the charity’s difficulties coming to light".
Companies House published notice of its intention to close Broken Rainbow in March 2016, according to the report, but the Home Office was unaware of this when it signed a grant agreement with the charity the following month.
The report also criticises the Home Office for not meeting its own requirements for monitoring the grant, because Broken Rainbow never submitted an annual report to the department as per the terms of its grant agreement.
Quarterly information provided to the department about the helpline’s performance often contained no performance data, the report says.
The report recommends that government departments consider "making better use of automated monitoring of publicly available information and use this to trigger alerts" – this would have alerted the Home Office to Companies House’s intention to close the charity.
The report says the government "could be more ambitious in the information it asks for from recipients of grants", because Broken Rainbow provided "much more limited" information to the Home Office than other funders.
But the report does acknowledge that the Home Office updated its internal guidance on grant monitoring and control in August 2016, and that Broken Rainbow’s helpline transferred to a new provider, Galop, without a break in service.
A spokesman for the Home Office said it would carefully consider the NAO’s report, but it would be inappropriate to comment further while investigations were ongoing.
The report says the Charity Commission had been contacted by some of the trustees to get advice on how to manage some of the problems they found, but the trustees had been offered "very little support". Of the five trustees at the charity when it collapsed, three had been appointed at the beginning of 2016.
David Holdsworth, chief operating officer of the Charity Commission, said: "We welcome the NAO’s recognition that balancing the burden of regulation on small charities while ensuring sufficient scrutiny poses challenges. There are clearly lessons here for us to learn: we have already started to address them through our transformation programme, which is improving our ability to prevent, detect and tackle mismanagement in charities."
The commission is also working with Cass Business School and the Cranfield Trust on research into trustees’ awareness of their legal duties.