The sudden closure of the English charity, Kids Company, has been met with significant public, governmental, and even celebrity interest, spanning national, regional and sector news headlines across the United Kingdom over the last couple of weeks.

Founded by Camila Batmanghelidjh in the mid-90s, the organisation has supported some of the most vulnerable and disadvantaged families in Britain, working in Bristol, London and Liverpool; and has won accolades including being awarded the Liberty and JUSTICE Human Rights Award in 2007 and being selected as a ‘Child Poverty Champion’ by the End Child Poverty project. With the BBC’s Alan Yentob as its chair, it has had a consistently high profile. Earlier this month, however, the charity announced that it was to close due to lack of funding, and since then it has been placed firmly in the public eye with an ever-lengthening string of allegations being made against the charity and its trustees in respect of financial mismanagement and failure to report incidents concerning young people accessing the charity’s services.

The situation has unveiled wider legal issues for the charity sector in terms of the regulatory framework charities are subject to and undoubtedly raises questions as to the operation of charities within the UK.

Charity law in England and Wales requires that charities with an income of over £25,000 submit, as part of the annual return, a declaration that there have been no serious incidents or other matters which should have been brought to the attention of the Charity Commission (but were not) during the previous financial year. The Commission’s Risk Framework explains the regulatory approach, and sets out examples of incidents which have been identified as being higher risk and worthy of reporting. For example, significant financial loss to a charity, serious criminality and other breaches of trust or abuse are amongst those considered to constitute a serious incident. Serious incidents should be reported as soon as reasonably possible, and not just on completion of the annual return.

The Office of the Scottish Charity Regulator (“OSCR”) is looking to develop a similar regime for charities registered north of the border.  In its recent report (published in March 2015 and following a consultation on Targeted Regulation), OSCR’s stated perception is that serious incident reporting could play a role in increasing public confidence in charities, improving compliance with charity law, and supporting a more efficient and effective use of resources.  The report indicates that a majority of individuals responding to the online consultation felt that serious incident reporting should be introduced in Scotland, but we are also well aware of misgivings raised within the sector.

But given what has happened with Kids Company (which was subject to the serious incident reporting regime in England), questions could well be raised as to the effectiveness of such a regime in Scotland.  Some respondents to OSCR’s consultation raised concerns regarding the sanctions faced by charities reporting a serious incident – their concern was that the self-incriminatory aspect of serious incident reporting might result in charities failing to report serious incidents, if there was uncertainty as to how OSCR would deal with the matter. Other concerns included questions over producing a defined list of reportable incidents and possible duplication of work with other regulators.

The Charity Commission statement on the closure of Kids Company states that they acted quickly when the concerns were brought to their attention – but it would appear, from the statement, that the Charity Commission only became involved last month, which is perhaps unexpected given the presence of serious incidents. This is notwithstanding that a former trustee is now reported as having raised concerns with the board (but not the Charity Commission) ten years ago.

Only time will tell whether the introduction of serious incident reporting in Scotland will have the desired effects (including offering struggling organisations assistance at the earliest opportunity, thereby potentially maximising the chances of survival) – but we would urge caution, as the self-incriminatory aspect of the regime could have the opposite effect at a time when public confidence in charities (at least those south of the border) appears to be decreasing. In addition, the consultation did not include charities on the brink of running out of money as being a serious incident, which (given what has just happened with Kids Company) would seem a somewhat curious omission. It is also questionable whether having a list of charities reporting serious incidents will actually increase public confidence in charities, if it is not then clear what steps are being taken (at a regulatory level) to address this.