Founded in 1996, the charity was set up to provide support to vulnerable and deprived inner city children and young people. At the time of its closure the charity employed more than 600 people and worked across a number of cities in the UK. In its years of operation it received more than £42 million of public funding. Its founder, the colourful Camila Batmanghelidjh, was its chief executive for 19 years and was awarded a CBE for her services to the charity and young people.

How did it happen?

So how did such a high profile and well connected charity get into such difficulty?

On 1 February 2016 the report by the Public Administration and Constitutional Affairs Committee (PACAC) into the collapse of the charity was published. PACAC found an ‘extraordinary catalogue of failures of governance and control at every level: trustees, auditors, inspectors, regulators and Government’. The Committee concluded there had been such negligent financial mismanagement by the trustees that it had resulted in the charity being unable to survive a reduction in donations following allegations of sexual abuse at the charity which surfaced in July 2015.

The report further found that the charity trustees had ignored repeated warnings about the charity’s unsustainable finances, had lost focus on what it was seeking to achieve and had not dealt with staffing problems appropriately.

All in all, a real mess

Some trustees may be tempted to dismiss such events as bearing little relevance to the day-to-day running of their church or charity. However, it is all too easy to become complacent about governance issues – they are not the most exciting item on a trustees’ meeting agenda, but trustees should avoid learning the lessons from the collapse of Kids Company the hard way.

Trustee tenure

One lesson to draw from the PACAC report is the importance of ensuring trustees do not stay too long in their post. The report into Kids Company concluded that both the Chief Executive and the Chair of Trustees had been in position for too long. It found ‘a clear link between the failure to correct serious weaknesses in the organisation and the failure to refresh its leadership’.

To prevent this issue occurring, many modern charity governing documents have a provision which limits trustees to serving a defined term. This is often in the form of three terms of three years up to a maximum of nine years, after which time the trustee must take a sabbatical of, say, one year before being considered for re-election. The automatic end of a trustee’s involvement can sound harsh after years of faithful service, but in many cases allows the retiring trustee the opportunity for refreshment and for the trustees who remain the chance to review the charity’s purpose and direction. This provision has the additional benefit of removing any embarrassment if it is the charity’s founder’s turn to have a sabbatical.

Financial management

The second lesson is one of financial management. The trustees of Kids Company came in for heavy criticism from PACAC for allowing the charity to become dangerously overstretched in its finances. Trustees of Christian charities walk a tightrope. They must tread carefully between balancing the books and stepping out in faith. A solution to this uneasy balancing act may come in the form of the charity having a robust reserves policy.

The policy can serve as a buffer for the charity such that any project or spending item must not take the charity beyond its reserves. It can also be useful for curbing those trustees whose passion for the project may lead them to take their eye off the charity’s finances.

Muddled objectives

third The lesson to draw from Kids Company’s collapse is the danger of allowing the implementation of the charity’s objectives to become muddled. Kids Company was criticised for being involved in such a range of projects that it was not clear what its focus was. Trustees should avoid plate spinning. More than ever there is a need for trustees to focus on the established purpose of the charity so it is clear to everyone – supporters, beneficiaries and members – what the charity is there to do.

Ben Bourne is a charity and employment solicitor at Ellis-Fermor & Negus Solicitors.