Needs an accountant: behind the collapse of the Kids Company

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Kids Company’s collapse in 2015 demonstrates that perception can matter as much as reality, particularly when it comes to charitable organisations.

At the time of Kids Company’s demise, a great deal of attention was on the charity’s founder Camila Batmanghelidjh. This was understandable, given that she was the driving force behind its rise and had the ability to gain support from high places, including from former prime minister David Cameron. 

Founded in 1996 in south London, Kids Company provided practical, emotional and educational support to up to 36,000 deprived and vulnerable inner-city children and young people. It employed more than 600 people. 

Allegations swirl

But as its fortunes waned in 2015, allegations of mismanagement began to swirl around Batmanghelidjh. Last year, though, a three-and-a-half year legal battle came to an end when the court threw out claims by the official receiver that Batmanghelidjh and seven former trustees failed to properly manage the charity in its tumultuous final months. 

The judge added, too, that while the charity had experienced cash flow difficulties, its board had taken steps to ensure it had a plan to manage the challenges it faced, and the charity might have survived had it not been brought down by unsubstantiated allegations of sexual abuse. 

Demands grow, donors go

When Kids Company closed in August 2015, the charity said its finances had become stretched because of the number of children “pouring” through its doors for help. But donors had been steadily withdrawing support, alarmed by the stories of alleged mismanagement. 

Earlier that summer, the charity had said it wanted to restructure and had sought new funds from the Government and donors. 

But it closed, with ministers Oliver Letwin and Matt Hancock saying they wanted to recover a £3m grant they had given to the charity a week prior. 

Batmanghelidjh said a private donor, who had pledged to match the Government grant, pulled out after hearing the Metropolitan Police were investigating abuse claims. 

And that was that. The reputational damage, along with the existing cash flow issues the charity was facing, were too much for it to ride out. 

The key lesson to take from Kids Company’s issues is that, while the truth certainly matters, perception is almost as important, particularly when it has the potential to have an impact on revenue streams, as it did in this case. 

Case outcome

Certainly, Mrs Justice Falk’s findings that there had been no dishonesty, bad faith or personal gain on the part of Batmanghelidjh or the trustees will be some vindication, but it came six years too late to save the charity. 

Following the case’s conclusion, Batmanghelidjh told The Guardian: “I’m so relieved, for the children, for the staff, the trustees, for the volunteers. They have been shamed by the many false stories about Kids Company over the years. I’m so glad I stood up against it and didn’t back down. This judgment brings tears to my eyes. I’m so glad that finally the facts won.” 

The story is a reminder of the financial and operational havoc that reputational damage can cause. Companies must not only be in the right, they must be able to demonstrate they are doing right – or they could suffer the consequences.

Calum Fuller Calum Fuller is editor of AT and 20 magazines. He's previously served as editor of Credit Strategy, assistant editor Accountancy and began his career at Accountancy Age..

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