What Lehman Brothers did to the public’s confidence in banks, Kids Company seems to have done for UK charities.

A survey in October 2015 revealed public confidence in charities at its lowest point since 2007 – when the surveys started – with charities now less trusted than supermarkets.

The failure of Lehman Brothers precipitated the 2008 banking crisis. Is the charity sector heading the same way?

Canary or outlier?

Both Lehman Brothers and Kids Company  were bellweathers of their particular worlds, well respected and with high profiles.  If these two can collapse overnight, then are the rest of our charities as safe as we’d like to think?

A tough summer

The summer of 2015 has brought some tough knocks.

In May, high pressure tactics from agency fundraisers – working for some of the country’s largest and most respected charities – were implicated in the suicide of 92-year-old poppy-seller Olive Cooke.

Then on 5 August Kids Company suddenly closed its doors. In the space of the last few months a previously highly respected charity has ceased operating and become the focus of a media storm, a Charity Commission statutory inquiry and a police investigation.

Fundraising strength

The Pubic Accounts Committee reports that since 1996 Kids Company received at least £43m from central government and more than £4m from local authorities and lottery bodies. This was “far in excess” of what other charities were given.

Somehow, despite this level of funding, by 2015 Kids Company was insolvent.

Did this come out of the blue? Are other charities equally at risk?

Warning signs

As the Kids Company débacle begins to unravel it is increasingly obvious that it was far from being a typical charity.

The striking scale of its public funding, for one thing. Plus its extreme dependency on a single source of funds, combined with its lack of reserves. And, it turns out, a range of other warning signs from multiple sources over the last few years.

Is your charity at risk?

Headlines have asked “where was the Charity Commission when Kids Company went down?” The government’s response was “The Charity Commission has neither the legal authority nor the ability to assess the financial health of the more than 160,000 registered charities; that is the job of each charity’s trustees”.

Charity trustees are in the spotlight.

If you’re running a charity, the collapse of Kids Company may provide a valuable prompt to stop and look more rigorously at any areas of administrative ambiguity or untidy governance. Things that you know should ideally be stepped up a notch.

Next steps

Personally I’m optimistic that the sector as a whole is in better shape than the Kids Company saga would have us believe.

And the way for you to be certain is to take a good look at whether your charity’s governance canary is still alive and singing.

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Geoffrey Hand

Geoffrey Hand is a charity governance consultant, offering governance consultancy and training. He also provides legal services management, helping charities get better value for money from their lawyers. Geoffrey has extensive experience in the charity and legal worlds, and his mission is to help charities deliver good governance.

Latest posts by Geoffrey Hand (see all)

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