MPs urge reform of charities in wake of Kids Company collapse

Camila Batmanghelidjh Credit: Reuters

MPs called for a "radical change" in charity regulation to prevent a repeat of the "extraordinary catalogue of failures of governance and control" that led to the collapse of Kids Company.

The widely-praised outfit supporting disadvantaged youngsters folded amid a storm of controversy in August 2015 - just days after receiving a £3 million Government grant in a final bid to keep it afloat.

In the latest of a string of scathing assessments of the fiasco, the Commons public administration and constitutional affairs committee, found trustees, ministers, watchdogs and auditors all played a part.

It is published days after a Scotland Yard investigation into reports of physical and sexual abuse linked to Kids Company, which helped precipitate the collapse, was dropped after detectives found no evidence of criminality.

Among wide-ranging changes backed by the MPs is statutory regulation of charities with safeguarding responsibilities for children or vulnerable adults by an independent watchdog such as Ofsted or the Care Quality Commission.

The report calls for much stricter controls on "unorthodox" payments to favoured causes by ministers, including a ban on handing cash to charities under investigation and removing responsibility from the Cabinet Office.

It was "astounding" that the Government did not acknowledge the need for a robust examination of the charity until 2015 and represented a failure of ministerial responsibility to spend taxpayers' money responsibly, it said.

And it demanded the Charity Commission do more to encourage people to report suspicions about mismanagement and be given extra resources and powers to launch earlier investigations into good causes.

The charity received more than £42 million of Whitehall funding between 1996 and 2015, thanks to its charismatic founder Camila Batmanghelidjh winning "unique, privileged and significant access to senior ministers and prime minsters".

That included £17 million in direct, non-competitive grants - some made in defiance of the objection of senior mandarins - which the committee said were "unjustifiable in future".

Committee chairman Bernard Jenkin blamed a "catastrophic confluence of factors" and said the fallout from the collapse was still to be felt in full.

"In the course of this inquiry the Committee has heard what can only be described as an extraordinary catalogue of failures of governance and control at every level: trustees, auditors, inspectors, regulators and government," he said.

"Despite lacking robust evidence about the quality of the charity's outcomes, value for money or governance, Kids Company attracted high profile support from senior ministers throughout successive governments.

"Government and regulators must learn from this. Proper mechanisms must be put in place to allow dispassionate, transparent, accountable decisions to be made about charity funding and regulation in the future."

He added: "I fear the repercussions of this episode are far from played out, but one of them must be a radical change in our approach to charity regulation at every level.

"When this level of public funding is involved, Government must have the skills and expertise to assess and hold funding recipients to account itself, and the Charity Commission must have the powers and resources to visibly, proactively investigate and tackle mismanagement."

Cabinet Office minister Oliver Letwin - who was criticised by the committee for releasing £3 million in defiance of officials - stood by the decision but said procedures were being reviewed.

The committee said ministers approved a multi-million pound lifeline "on the basis of little more than their relationship with a charismatic leader, small-scale studies and anecdotes, and no more than two visits made by Mr Letwin more than 10 years previously".

It had "proved to be an unjustifiable way to conduct Government business and to handle public money," the MPs concluded.

Mr Letwin said: "As I said to the committee, I believed it was the right thing to do to give this charity one last chance to restructure.

"We will of course pay careful attention to this report and in light of what we now know about Kids Company we will be reviewing our grant-giving process.

"By updating the process by which grants are awarded we will make sure the most stable, most effective charities receive taxpayer funds."Plans are being drawn up for a "more rigorous and probing approval process" for grants made under the terms of the Charities Act and new guidance of the provision of direct help, officials said.

The report criticised the BBC's response to the role of Alan Yentob, chairman of the trustees at Kids Company who were accused by the committee of being ultimately responsible and guilty of relying on "wishful thinking and false optimism".

Mr Yentob denied abusing his position to influence the broadcaster's coverage of the controversy but stepped down as its creative director - with the BBC Trust ruling out an investigation.

He continues as editor of arts programme Imagine and in an unpaid role as chairman of BBC Films.

The committee said his actions were "unwise at best, and deliberately intimidating at worst".

"The proper governance of conflicts of interest and standards of behaviour - particularly amongst its senior executives - is a very serious matter for any reputable organisation.

"That a senior figure could act in this way and it could take so long for action to be taken reflects poorly on the BBC's leadership."

In a statement, the former trustees of Kids Company said the report was "inaccurate, unbalanced and irresponsible" and would "interfere with the proper functioning" of an investigation being undertaken by the Commission.

They accused MPs of having "naively accepted allegations made in the media and by a small number of individuals, some with vested interests in damaging Kids Company and its much-praised model of loving care and practical support" at the expense of the evidence of expert witnesses.

The dropping of the police investigation highlighted "the committee members' naivety in believing the claims of a few detractors of Kids Company," they said.

Board minutes showed it was false to claim that they "ignored repeated warnings about the charity's financial health" and failed to act on concerns raised.

"It is a regrettable feature of British democracy that the committee can use the curtain of parliamentary privilege to produce what is an irresponsible report, immune from the defamation claims that would inevitably follow without this privilege," they said.