The House of Commons Public Administration and Constitutional Affairs Committee (PACAC) has published the latest contribution into the reasons for the collapse of Kids Company. Its report identifies important lessons for the trustees of charities, professional auditors, the Charity Commission and government.
The primary responsibility for the collapse of the charity is placed on the trustees. Citing guidance issued by the Charity Commission, it notes trustees are expected to ‘make decisions solely in the charity’s interests', and ‘shouldn’t allow their judgements to be swayed by personal prejudices or dominant personalities.'
The report argues the board of trustees ignored repeated warnings about the charity’s financial health and failed to prioritise the building of sufficient financial reserves to strengthen its resilience. Rather, the charity’s demand-driven operating model meant their was a constant risk that demand for resources would exceed availability.
Although the auditors signed-off the organisation's accounts as a ‘going concern’ they did so having received a letter of representation signed on behalf of the trustees. The report notes that as statutory accounts are audited and published long after the event, they should not be taken to reflect the current state of the organisation’s finances.
The report also highlights a weakness in the composition of the board of trustees. The board comprised seven trustees, none of whom had a background in youth services or psychotherapy. The Chair of the trustees had carreid out the role for 12 years.
Issues for governors:
In addition to the work of PACAC, the Charity Commission is carrying out a statutory inquiry into Kids Company's governance and financial management. When its inquiry is complete, it is expected to publish a report on its findings.
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