Auditors aren’t enough – charities need scrutiny from people who understand their work

18 Nov 2015 Voices

The Kids Company scandal shows auditors alone cannot scrutinise charities, says Genevieve Maitland Hudson. They need regular and effective assessment from someone who understands their work.

The Kids Company scandal shows auditors alone cannot scrutinise charities, says Genevieve Maitland Hudson. They need regular and effective assessment from someone who understands their work.

Yesterday’s session of the Public Administration and Constitutional Affairs Committee underlined once again that the charity Kids Company was never professionally assessed by anyone competent to judge the effectiveness of its interventions.

The Committee heard from three sets of auditors who had been involved with the charity. PwC had been appointed after concerns were raised with the Charity Commission in July, PKF Littlejohn had been commissioned by the Cabinet Office in 2014. Both had carried out short-term intensive examinations.

Kingston Smith were the longer-term external auditors of the charity’s annual accounts. It was clear however, much to the Committee’s frustration, that none of the firms had been in a position to assess the value the charity brought to the taxpayer.

Will Richardson of PwC and Alastair Duke of PKF Littlejohn stuck firmly to the narrow remit of their appointments. Duke asserted that they had “carried out what they were asked to do” and added for good measure that “effectiveness was outside the scope of the review”. Will Richardson also said explicitly that his team hadn’t drawn links between expenditure and “clinically assessed need” during the intensive three day review they carried out in the summer.

Nick Brooks, partner at Kingston Smith, who was the most forthcoming of the three auditors, repeatedly said that he was not in a position to judge the validity of the expenditure put forward by “therapists and case workers”. He had queried a payment for a boxing course that had struck him as unusual, but had been told it was recommended by the keyworker. He admitted that the charity was “unorthodox” but added that he had “always been given an explanation” for the costs in the samples selected for the annual audit. Finally, he concluded that it was not for auditors to take a moral position on the value of a charity.

The Committee was quite evidently irritated by their responses. Paul Flynn derided their reports as a “management romp” which was “of no use to the committee”, and the committee chair Bernard Jenkin asked, perhaps rhetorically: “What’s the point of reports like yours if they don’t answer the questions people want to know?”

The day’s final witness Sue Berelowitz, former Deputy Children’s Commissioner, picked up on the problem at the root of the Committee’s annoyance: the auditors weren’t competent to answer these questions.

She underlined the need for expert professional assessment, and noted that the charity had been very good at keeping this kind of oversight at arm’s length. She had to “battle” to access Kids Company sites and meet children and young people. It was only on her third visit that she was able to do so, and then she felt “a high degree of disquiet” at what she found. She made it quite clear, however, that she had not been able to carry out a formal review of the charity.

Yesterday morning’s evidence highlighted the absence of appropriate professional oversight of Kids Company and the limited ability of an audit, however competent, to answer substantive questions about the value of a charity’s work.

How then should effectiveness be assessed? Sue Berelowitz went on to make suggestions including a series of statements in a charity’s annual accounts to be signed by the chair of trustees. These would include a statement about the verification of the ouputs and outcomes of the charity’s work. This would certainly strengthen accountability, but begs questions about the nature of the ‘verification’ that would be carried out, and again, the competence of the trustees to judge the process. It brings in an extra layer of procedure, but without answering the fundamental questions: who verifies the effectiveness of charities? and how?

These are the question that charities, particularly those in the youth sector, are going to be called upon to answer in the light of the Kids Company inquiry. Recommendations on regulation and new guidelines for auditors and trustees may go some way towards making these questions more salient, but they can’t answer them.

The sector itself will have to do that. It could draw on examples of independent oversight in the US in platforms such as Charity Navigator and Give Well. These offer some interesting insights. Professional associations which issue practice certificates are an alternative approach. Either way, it is this space into which the Centre for Youth Impact must step to provide much-needed direction.   

Genevieve Maitland Hudson is a director at social impact consultancy Osca and a former employee of Kids Company