Kids Company: A cautionary tale to heed for Singapore’s Social Service Sector

In 2016, The Guardian reported a 10% decline in public trust rating in charities after a series of high-profile incidents headlined by the collapse of Kids Company amid financial mismanagement. Charities hold a significant responsibility in society, but it is not always easy to live up to the lofty expectations that the public places upon them. What can Singapore’s social services learn from this prominent case?

Illustration provided by Freepik

Background

Kids Company was a UK-based charity organisation founded in 1996 by Camila Batmanghelidjh with the aim of helping young ex-offenders and disadvantaged children. The organisation was dependent upon the financial support of businesses and the government, and was nationally known after receiving high-profile donations from JK Rowling and Coldplay.

Despite the seeming success of Kids Company throughout the 2000s, financial and legal problems arose when in 2015, Scotland Yard placed Kids Company under investigations over claims of child sexual abuse and the exploitation of youngsters. Police investigations subsequently found no tangible evidence of the purported crimes and the case was thrown out, although by this time the organisation’s reputation had already taken a hit.

Things got worse later in the year when Kids Company went bust after the UK government retracted their £3 million grant, causing the organisation to default on their debts and forcing them to cease operations. As a result of the abrupt shutdown, 6000 kids were left vulnerable and without support. This debacle sparked public discussions concerning the financial practices and governance of charities in the country, and caused public trust in charities to decline significantly.

What can Singapore learn?

While the collapse of Kids Company was inconsequential for the social service sector in Singapore, there are a number of things to be learnt from this prominent debacle.

Rationale for Reserves

Kids Company was guilty of spending most of its income each year and not stocking up its reserves, having become over reliant on massive government handouts. This emphasises the importance of building a sizable financial reserve to buffer against the unpredictability of a charity’s primary income sources. This is especially crucial in the COVID-19 era, where an unstable socio-economic climate might result in lower donation sums, especially in the case of corporate donations. In 2019, the National University of Singapore (NUS) published a handbook detailing important financial and accounting modus operandi, including how organisations should go about assessing their finances and diversify their income sources to build up their reserves.

Operational Liquidity and Investment Income

Charities first need to consider their operational costs. They include staff and maintenance costs, as well as the expenses of running their programmes. These costs need to be calculated and organisations should strive toward achieving good value through tendering and competitive prices.

Secondly, charities should look to diversify their income sources and become less dependent on public or corporate donations by prudent investments. Surpluses and excess cash-flow can be reinvested into avenues such as fixed deposits in banks and other investments producing dividends and rentals. Definitely, this process is easier said than done and organisations should consult their stakeholders’ and Board’s approvals. These surpluses can then be converted into reserves to ensure sustainability for charities.

Overall, the case of Kids Company serves as a reminder to all social organisations the need to be accountable and responsible with their finances and operations. As custodians of social equality and change, social organisations bear the responsibility of ensuring that public donations are well managed and operations are made sustainable so that social services can contribute to society in the long term.

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Author: Gerald Peh