Public Administration and Constitutional Affairs committee

Anna Turley Excerpts

Thursday 4th February 2016 Commons Chamber

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I am grateful to the Backbench Business Committee for the opportunity to make this statement on our report entitled, “The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall”.

We found that an extraordinary catalogue of failures of governance and control had taken place in the charity. It is obvious that many will feel blamed by our report. However, we very deliberately set about investigating the matter with a view to find lessons to be learned, not to find blame. Unless we can learn lessons, there will be an increased likelihood that such events will be repeated.

First, on the question of professional firms, the charity’s auditors repeated in every audit letter their concern that reserves in the charity were very low. The charity never acted on that advice. Instead, it was all too keen to trumpet the fact that it had received what it called a “clean audit” in every year of its existence. Under questioning, the auditor said that the charity had been living permanently “on a knife edge”. That sense of urgency was not communicated in formal advice to the charity. He also candidly admitted that the auditors should have notified the Charity Commission of their concerns about the charity, in accordance with the duty placed on auditors of charities under section 156 of the Charities Act 2011. That is a lesson that I hope all auditors will learn.

We also cross-examined Pannell Kerr Forster, which did an investigation into the governance and controls of the charity, on behalf of the Cabinet Office. We were concerned about how it evolved the remit of its report into being an investigation into governance controls rather than governance and controls. The report ended up being of rather limited value in the Cabinet Office, although it was read as what it was originally intended to be. That gives rise to the question of how the Government manage professional firms, as well as of how professional firms conduct themselves in respect of their responsibilities.

The charity also commissioned advice from PricewaterhouseCoopers, but it had so little time to produce anything in the run-up to the collapse of the charity that what it produced was of extremely little value. The Government took too much comfort from that report as well, and PwC should have been more candid and direct with the Government about how valuable its work could be to them.

The Charity Commission has a statutory duty to prevent, detect and tackle abuse and mismanagement in charities. It did not do so with Kids Company. Prior to 2015 the Charity Commission did not engage with Kids Company, because it received very few complaints. Why did so few people complain to the Charity Commission, given that this was, for a long period, a charity with a mixed reputation that excited a lot of public comment? In order to attract complaints, the Charity Commission should have a much higher profile as an avenue for complaints. It needs to be much more proactive in responding to concerns that are raised in public about a charity. In the case of high-risk charities with many employees and dependent beneficiaries, it should be equipped and funded to do more to provide scrutiny and, more importantly, advice and support to struggling trustees.

The Government need to reverse cuts to the Charity Commission to enable it to carry out its statutory function. We also recommend that the Charity Commission take new powers to hold hearings and to produce reports and recommendations about charities. It really should not fall to a Select Committee of the House to produce reports on the activities of individual charities. Kids Company received more than £42 million in grants from central Government across several Administrations, and it has not had to compete for a grant since 2013. Other charities have voiced bitter discontent at the unfairness of that. Government will need to work hard to restore faith in the grant-giving system of Whitehall.

Kids Company enjoyed unique, privileged and significant access to senior Ministers, and even to Prime Ministers and Leaders of the Opposition, throughout successive Administrations. Some witnesses stated that they were intimidated by that high-profile support, and questions have been raised about whether it affected funding decisions; it certainly discouraged people from raising concerns. Government lacked any objective assessment of Kids Company’s activities and outcomes, and the effectiveness of its governance. Government must improve their capability so that they are less reliant on external reviews when making assessments about charities.

The civil service should be commended for resisting the hold that Kids Company seemed to have over so many others, but the advice of the civil service was, in the end, overridden. Ministers should not allow charity representatives to exploit their access to Government in a way that might be construed to be unethical. Ministers should not override, or risk creating the perception that they are overriding, official advice to hand over funding to charities on the basis of personal prejudice or political considerations. That raises questions about how conflicts of interest for Ministers are addressed in Government with respect to charity funding. The awarding of commercial contracts could never have been conducted on the same basis.

The real message of the report is about charity trustees. It is the same as the message in our report about charity funding last week, in which we found that trustees of some of the most famous charities in the country had failed to understand what was being done in their name. Both reports highlight the role of trustees of charities. The primary responsibility of trustees is the good governance and the maintenance of the reputation of their charities. The primary responsibility for Kids Company’s collapse rests with the charity trustees, who failed in their duty concerning the governance of the charity. I do not for a moment doubt the good faith of every trustee who served the charity, and I have evidence that some tried very hard to do the right thing. The only conclusion that anyone can reach is that either they did not know or understand the implications of what was going on in the charity, or they knew and failed to act.

The Charity Commission’s guidance requires trustees to

“make decisions solely in the charity’s interests. They should not allow themselves to be swayed by personal prejudices or dominant personalities.”

That seems to be exactly what happened in Kids Company, however, and it must be in danger of happening in every large charity that has been built up by a powerful and influential founder. The lesson is a universal one for all trustees. The trustee body of Kids Company did not have the necessary knowledge or experience of, for example, psychotherapy or youth services to be able to interrogate the operating model and safeguarding procedures.

In conclusion, it would be wrong to scapegoat any single individual for what occurred in the charity, but there are lessons that the House, the Government, the Charity Commission and professionals should draw from the situation. Most importantly, the Government need to understand what went wrong and how it can be rectified in future.

[Anna Turley (Redcar) (Lab/Co-op)]

I pay tribute to the hon. Member for Harwich and North Essex (Mr Jenkin) and the members of the Select Committee for this important report. It has shone a light on what is a very sorry saga for all concerned, not least the vulnerable children who turned to Kids Company in their hour of need. I also pay tribute to the thousands of volunteers and workers in the sector who do so much to support vulnerable young people, usually without the same levels of funding and freedom that Kids Company clearly enjoyed. It is a deep shame that so much good work is at risk of being tarnished by this unique, high-profile failure. Having read the report, particularly the evidence given to the Committee by the senior civil service, I want to ask the hon. Gentleman about the way in which grants were administered, and whether he feels anything has changed since his report.

The Government have just passed the Charities (Protection and Social Investment) Bill, which was supported by Labour, to beef up the Charity Commission’s regulation of the sector, particularly when it comes to trustees. Does the hon. Gentleman feel that the Government have learned their own lessons? For example, it is clear that rules applying to other charities did not apply to Kids Company. As he said, it had not had to compete for a grant from central Government since 2013. The Committee was told by a former Conservative Minister that Kids Company

“appeared to have a lower threshold of proof in order to get money from public funds”

and that its chief executive

“was almost the poster girl at the Big Society summit”.

I ask the Minister whether the Government—both Ministers and civil servants—have actually acknowledged their role in this sorry saga, and whether they have taken any concrete steps to ensure that they are never complicit in such a tragedy again.

[Mr Jenkin]

I am grateful to the hon. Lady for her comments. Let me emphasise, as she did, that it is plain to see that there was much good work going on in the charity, and that has been lost; that many vulnerable young people were dependent on the charity, and they have been left forlorn and bereft; that many of the employees and volunteers were deeply committed to the charity’s work, and they feel deeply betrayed and let down by what has happened; and that this has caused a great deal of distress. I am pleased to be able to inform the House that there is already evidence of things being salvaged from Kids Company and of things being rebuilt in the sector. We wish every success to those who are going to fund and support those things, because there is a gap, which the charity was seeking to fill, in meeting the needs of our society.

Yes, we are recommending even more powers for the Charity Commission than those in the Charities (Protection and Social Investment) Bill. We very much want the Charity Commission to recommend courses for charity trustees, so that they have somewhere to go to learn. The Institute of Directors runs courses for non-executive directors. Where is the equivalent for charity trustees, who have just as onerous a set of responsibilities? It is not the executives and the chief executive who are responsible for the conduct of a charity, but the trustees, who are jointly and severally liable, and it is not just the chairman who is responsible, but all the trustees.

We want the Charity Commission to have the power to hold legally privileged hearings, like those of a statutory inquiry, so that it can hear and receive evidence that cannot be impugned in the courts. That would mean that people with concerns about charities could go to the Charity Commission without the fear of losing their job, of reprisals or of being traduced in the press. The Charity Commission would be able to hold proper hearings and people could speak to it without fear or favour, as they do before Select Committees.

The hon. Lady raised the question about conflicts of interests that Ministers did not quite understand and that the system has not quite grasped. If the senior executive of a charity appears on a public platform with someone who then becomes the Prime Minister or is photographed in the Cabinet room with the Prime Minister at the launch of a Government initiative, they have a mutual interest, and that was not reflected in the way decisions were made in this case. If the political interests or the financial interests of the charity become aligned with the political interests of certain Ministers, those Ministers should recuse themselves from those decisions, as they would in any commercial arrangement. There is going to be a new arrangement. We are going to require the Government to think about this very seriously and possibly even amend the ministerial code accordingly.