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The Collapse of Kids Company - Lessons for the Charity Sector

on Tuesday, 21 June 2022.

In February 2022, the Charity Commission released its long-awaited report on its inquiry into the high-profile collapse of the Keeping Kids Company.

The report includes wider lessons for the Charity sector and invites all charity trustees to consider them in the context of their own charity.

Lessons for the Charity Sector

The lessons identified by the Commission fall into four broad areas:

  • Charity boards should ensure checks and balances - and the right blend of skills and knowledge - are in place, to avoid power imbalances.
  • Charities should identify and balance the risks associated with innovative operational models, and evidence the benefits.
  • Charities should undertake financial planning and recording including maintaining a reserves policy.
  • Charities should ensure infrastructure, governance and resources keep pace with growth.

Lessons for the Charity Commission

In response, the Commission has bolstered its regulatory toolkit more broadly including in the following areas:

  • The Commission will take a more proactive approach to identify and srutinise charities that operate in high-risk areas, through investing in technology that can identify charities presenting financial risks,and identify indicators that form part of a financial risk assessment.
  • The Commission has strengthened its reserves regulatory toolkit and hosting outreach events for trustees. The Commission has also published guidance for auditors and independant examiners regarding their duty to report matters of material significance to the Commission.
  • The Commission has improved complaints processes to ensure a timely, risk-based assessment of complaints made to the Commission. The Commission sees the reporting of serious incidents (including details of what they are doing about it) by trustees as a positive and proactive approach to governance.
  • The Commission has introduced new questions as part of the charity registration process to identify and engage with charities that are wholly or partially reliant on central or local government funding, to help charities consider and manage the risks inherent in that dependance, and the expectations that come with such funding.

Key Lessons for Charity Trustees

In addition to the above lessons for the charity sector, the report reveals a number of interesting insights into the Commission's stance:  

  • The Commission's threshold for determining trustee mismanagement and/or misconduct is relvatively low when compared to the High Court's threshold of whether a charity trustee is 'un-fit'.
  • Organisations that provide publicly funded services are required to evidence a plan (known as a 'living will') for how services can be secured and continued if the organisation fails.
  • Founders (or other long-standing leaders) of charities need to be mindful that a permanent leadership role is rarely in the best interests of a charity. No charity should be defined by a single individual, and asymmetric power and influence can lead to unhealthy board or organisation dynamics, and ultimatley lead to poor decision making.
  • Diversity (in all its forms) on a charity board leads to better decision-making and helps to mitigate risks.
  • There is no single level of reserves that is right for every charity, but a low level may result in limited resilience against challenges. Reserves are also important to allow an orderly winding-up or merger with another charity in the interests of a charity's beneficiaires.
  • All funders are encouraged to recognise their role in encouraging good governance and sustainability of services by considering a contribution to the charity's core costs.

To assist charity trustees when analysing their own charity's governance, finance and resilience, the Commission has prepared 15 questions that trustees should ask themselves.

For more information on charity governance, please contact Chloe Price in our Charities team on 0117 314 5469, or complete the form below.

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