Kids Company: not so much a business model as a recipe for disaster

Independent on Sunday, 9 August 2015

It survived as long as it did because of generous injections of taxpayers’ money

There’s nothing unusual about charities trying to attract celebrity supporters. Kids Company was no different in that respect, counting Damien Hirst, Rowan Atkinson and Coldplay among its starry donors. But its most generous celebrity supporter seems to have been one David Cameron, who was more than happy to share a stage and be photographed with its charismatic founder, Camila Batmanghelidjh.

So, to be fair, were Boris Johnson, Gordon Brown and Prince Charles. But when the charity collapsed last week, Downing Street was accused of over-riding ministers and civil servants who expressed reservations about its performance and management as long ago as 2012. The prime minister and Batmanghelidjh make an odd pair, but no one should under-estimate the yearning of politicians to be associated with funky organisations that speak the language of the street.

There’s more to it than that, of course. Cameron doesn’t talk much about the ‘big society’ these days but five years ago he was full of enthusiasm for it. His argument was that private philanthropy and voluntary work would fill the gap as the state drew back from funding all sorts of projects – always a dubious proposition, but the prime minister was adamant it wasn’t a cost-cutting exercise. He was right about that: Kids Company has received £37m of public money since it was set up 19 years ago, with just over £14m being handed over between 2011 and 2013.

The charity’s work force grew to more than 600, raising running costs to a point where it needed to use £800,000 of a £3m government grant last week just to cover one month’s salaries. Staff who lost their jobs when Kids Company closed were understandably upset, but the trustees had been warned that the charity was living beyond its means. Indeed the most substantial charge levelled at Kids Company to date – that it spent up to the hilt and failed to build up adequate reserves – is more or less admitted in its 2013 accounts. The organisation observed frankly that its business model was ‘to spend according to need, which is consistently growing’. That isn’t so much a business model as a recipe for disaster.

Charities haven’t had a good press lately and it is extraordinary that this one escaped critical scrutiny for so long. One of the effects of government spending cuts is that NGOs need to raise more cash; events like the war in Syria make ever-bigger demands on their resources, but charitable giving is static or declining. What are they to do? Earlier this year, telephone calls and begging letters from charities were blamed for the suicide of a 92-year-old woman, Olive Cooke, even though her family insisted that she was suffering from depression and insomnia. Then the prime minister entered the debate, describing the fund-raising methods of some NGOs as ‘frankly unacceptable’. Perhaps Kids Company didn’t need to use such methods because it could go direct to No 10.

Now the organisation is bankrupt and thousands of children and young adults have lost services they’ve described in glowing terms. Everything else is mired in sensational allegations, briefings from hostile sources and a highly emotional (some would say manipulative) fight-back from Batmanghelidjh. Two days ago, supporters demonstrated at the gates of Downing Street, but Labour is right to call for the National Audit Office to carry out a review of public funding to the organisation. The fact that people are angry doesn’t prove that it was well run or that the money it received was spent wisely.

At the same time, such a high-profile collapse is in danger of drawing attention away from the difficulties faced by the rest of the charity sector. It isn’t unusual for small NGOs to quietly close their doors without anything like the furore we’ve witnessed in the last few days, but with devastating effects on the people who depend on their services. In April, three day centres for people with mental health problems closed in Southwark, leaving hundreds of vulnerable individuals with nowhere to go; a month earlier, two leading charities said that the safety net for women and children fleeing domestic abuse was being ‘dismantled piece by piece’.

One lesson that emerges from this dreadful saga is that a disdain for administration creates exactly the kind of risk that destroyed Kids Company. Charities feel they have to make a point of saying how little they spend on admin – it has come to be seen as an almost wilful with-holding of cash from people who need help – yet effective governance (making sure an organisation is properly run, in other words) is essential to their survival.

Kids Company got into trouble not because it didn’t raise funds but because it spent the money as fast as it came in, assuming that the government would bail it out if it got into trouble. That was still going on as recently as last month, when two ministers over-ruled civil servants and told them to hand over the £3m they are now trying to get back. Not for the first time, an ideologically-driven conviction about the superiority of the private sector over public services has had a disastrous impact on vulnerable individuals and put taxpayers’ money at risk.

Private philanthropy is too piecemeal, and too inclined towards popular causes, to provide consistent services across the board. It has become a beauty contest in which those charities able to produce the most telegenic and articulate victims get more attention than the rest. A flamboyant, media-savvy chief executive helps, but there is an unmissable irony at the heart of this sequence of events. The very project that was supposed to embody the prime minister’s ‘big society’ survived as long as it did only because of generous injections of taxpayers’ cash.

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