The news that Kids Company has closed down is a devastating blow to everyone involved.
Following the closure we spoke to Hawsons’ three charity partners, Paul Wormald, Richard Burkimsher and Simon Bladen to get their thoughts on what lessons trustees can learn from the Kids Company collapse.
What is the biggest lesson trustees will learn from the Kids Company closure?
“Trustees have overall responsibility for how a charity is run, including how its finances are managed. They need to make sure that they understand what funding is in place to enable the charity to meets its objectives, know how those funds are going to be spent, and make sure that sufficient reserves exist to enable a ‘plan b’ to be put in place if funding streams dry up in the short term.”
“I would echo Paul and Richard’s comments. Trustees have to be comfortable with the executive team managing the charity. They rely on the information being presented to them in order to run the charity effectively. For example, if management information is incomplete or budgets/forecasts are unrealistic then they need to be bold enough to challenge what is presented before them. Not doing so can be interpreted as irresponsible behaviour.”
“Trustees need to recognise that their own reputations can be damaged through no fault of their own when charity’s such as Kids Company cease to operate. Trustees should continually strive to ensure that they are appropriately advised if the necessary skill sets are not available to them in-house. Their role extends to ensuring that the Chief Executive is acting in accordance with the charity’s best interests.”
What advice would you give to trustees when there is so much speculation?
“I think there can often be the temptation to rely on fellow trustees, especially when joining a charity with many long serving trustees who will (or indeed should) have an encyclopaedic knowledge of the charity’s affairs. But when speculation is rife the trustees need to make sure they can demonstrate they have taken the necessary steps to arrive at the decisions they take. If there is hesitation in making decisions, especially of a financial nature, then perhaps the decision shouldn’t be taken.”
“Kids Company’s cessation of operations should act as a reminder to trustees, who will often offer their support in good faith before being fully aware of their responsibilities. In all seriousness – ensure adequate insurance is in place!”
“Choppy waters and uncertainty for any organisation call for a calm head and a steady hand – trustees should use their professional advisers as a sounding board for their concerns. Carrying out a review of procedures, plans, and the presence of complementary skills on the board of trustees are always prudent and sensible steps to take, particularly when faced with challenging. circumstances.”
What degree of transparency should there be in how funds are spent?
“There is already a great deal of transparency within the Charity Reporting Regime. Charity accounts often prove to be very lengthy and complicated for many users of those accounts. Putting more regulation and disclosure in place will not lock out the risk of a recurrence of recent events.”
“Trust and confidence should be at the core of any charity’s operations. Using the public’s and/or government’s money for the charity’s objects means accountability is key – people want to know how their hard-earned money is spent. The requirements of the Charity’s SORP give a minimum standard of disclosure to the public at large, but the opportunity exists in the wider annual report for the trustees to highlight how funds have been applied and what difference those funds have made to peoples’ lives – that’s an opportunity that really shouldn’t be missed.”
“Full disclosure should always be high up on the agenda. Charities rely on public support by their very nature. When cases such as this come to light it can damage the sector, not just the individual charity. Trustees should put themselves in the position of the donors, wouldn’t they like to know how the funds are being spent? As Paul rightly mentions, the Trustees’ Annual Report is a great way to do this.”
Are there always financial warnings?
“In any organisation where money is being handled, be it commercial or charitable, there will be factors that impact on the financial wellbeing of the organisation that can be controlled by management, and those that can’t be controlled. By having good systems of financial management, control, and forecasting, coupled with an ongoing dialogue with professional advisers trustees can give themselves the best chance of identifying the warning signs when they arise, and take remedial action before it becomes too late.”
“This really does depend. With good, trustworthy people in the right positions you would like to think that the warning signs are there. This is vital as it enables trustees to take corrective action at the earliest available opportunity. Finding out after the event leaves trustees with little hope of correcting the situation before it is too late.”
“Not always! What is most disconcerting is that the Government were perhaps the last major donor to the charity. Charities have a requirement to determine their own Reserves maintenance policy. This is an opportunity for other charities to take stock and reconsider the balance between fulfilling their charitable objectives and safeguarding their own future.”
What final advice would you give to trustees?
“Speak up! If you have concerns bring them to the table, you (and everybody else for that matter) may be glad that you did. Always try and make decisions proactively rather than retroactively!”
“Consider the use of an internal audit function. It may cost in the short term but may well be more cost effective in the longer term. Relying solely on an annual external audit which has a different purpose, is inappropriate.”
“Review regularly, talk with your advisers often, and don’t be afraid to challenge the charity’s executive and management.”
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