Kids Company operated a 'high-risk business model', long-awaited inquiry concludes

The Charity Commission's report finds mismanagement in the defunct charity but 'no dishonesty, bad faith or inappropriate personal gain'

A Kids Company building in 2015 (Photograph: Carl Court/Getty Images)
A Kids Company building in 2015 (Photograph: Carl Court/Getty Images)

The collapsed charity Kids Company operated on a “high-risk business model” and its repeated failure to pay workers and tax bills on time was tantamount to mismanagement, the Charity Commission has said.

The long-awaited report of the regulator’s statutory inquiry into the charity, which closed abruptly in 2015, was published today and found that the charity’s seven trustees should have acted sooner to improve the charity’s financial stability.

But the commission agreed with a High Court judgment issued last year, when the Official Receiver failed in its attempt to have some Kids Company trustees barred from serving as company directors, that there “was no dishonesty, bad faith, or inappropriate personal gain in the operation of the charity”.

Kids Company collapsed just six days after it received a £3m grant from the government because it was unable to pay its debts.

The charity had been in the process of restructuring, with its founder, Camila Batmanghelidjh, stepping down as chief executive alongside changes to make its financial model more secure.

The commission report says the charity, which had an income of £23.1m in the year to 31 December 2013, “operated under a high-risk business model”, as shown by the heavy reliance on grants and donations, reliance on Batmanghelidjh as the key fundraiser, a lack of reserves and a demand-led service.

The report says that “such a model is not in and of itself unusual”, but “what is unusual is the operation of such a model in respect of a charity of this size”.

In a statement accompanying the report, the commission said trustees “should have acted sooner during the period of the charity’s growth to improve its financial stability” by building up reserves and paying off debts.

A criminal investigation into allegations of sexual abuse was opened shortly before the charity closed, but later found no evidence of criminality.

The report acknowledges that without the investigation the charity might have survived, but points out that with a higher level of reserves, it might have been able to avoid insolvency, wind up in a more orderly fashion or merge with another organisation to ensure beneficiaries continued to be supported.

The inquiry also found “a pattern of failure to pay monies owing to HMRC on time”, which resulted in the charity owing £850,000 when it went into liquidation, down from a high of £1.2m in June 2015.

It also found debts to self-employed workers which totalled £100,000 in July 2014 had still not been paid by the following November.

“These failures to make payments to HMRC, workers, and other creditors on time is, in the inquiry’s view, evidence of mismanagement in the administration of the charity,” the report says.

The inquiry examined more than 167 boxes of documents, 96 filing cabinets and had access to approximately 500,000 electronic documents.

But the report says that some records had been destroyed when Kids Company was wound up, while some had never been made, meaning there was “insufficient evidence” for the inquiry to be satisfied that the charity’s significant expenditure on a relatively small number of beneficiaries was either justified or in the charity’s best interests.

The report concludes this was “below the standards the commission would expect from a charity”.

The inquiry also found Kids Company could have been more transparent about the number of children it was actually supporting.

While it estimated that it worked with 36,000 children a year, this included indirect beneficiaries as well as direct ones – so all the children in the same school class as a beneficiary would have been included in that total.

The report also concluded that a greater diversity of professional experience and more regular refreshing of the charity’s trustees would have improved the board, and that Batmanghelidjh had a significant amount of control over trustees.

“No charity should be defined by a single individual,” the report says.

Helen Stephenson, chief executive of the Charity Commission, said the sudden closure of the charity had “served as a defining moment in the relationship between charities and the public on whom they ultimately rely”.

Jennifer Emms, partner at Maurice Turnor Gardner LLP, who led the legal team representing one of the Kids Company trustees in the High Court case, said the High Court’s judgment was “the real authority for an assessment of the trustees’ conduct”.

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