Kids Company collapse offers salutary lesson about the use of professional advisers. Their partial assurances obscured more than they revealed
THE COMEDIAN W.C. Fields is credited with the line, ‘never work with children or animals’. In the case of Kingston Smith, PKF Littlejohn and PwC the trope should read ‘never work with Kids’ after the three firms were criticised by MPs for failing to report the scale of risk carried by charity Kids Company prior to its collapse into administration last year.
No one emerges from the post mortem of Kids Company’s failure with much credit. MPs in the Public Administration and Constitutional Affairs Committee delivered a grim verdict on systemic failure – where trustees, management, auditors and firms commissioned to investigate certain elements of the charity’s financial practices could not prevent its collapse.
All three firms, to a greater or lesser extent, flagged concerns about the financial health of Kids Company and the risks associated with the charity. Kingston Smith, the charity’s auditors, warned about Kids Company’s precarious finances – albeit with softer language than its predecessors, while PKF Littlejohn and PwC were both engaged to conduct specific reviews into elements of financial practices at the charity and flagged concerns of their own.
Nevertheless, these concerns were ignored by the trustees of Kids Company and failed to alert the government and charity watchdog as to the impending precipice Kids Company was about to plunge headlong over.
There is a salutary lesson to be learned about the use of professional advisers.
Clearly, they are not a substitute for the exercise of judgement by those within. Firms tend to limit the scope of the terms of their investigation in order to limit their own exposure to risk.
And, in the case of Kids Company, they avoided making any examination of the wider issues that threatened the charity’s existence. And according to the report, the partial assurances offered by the firms may actually have obscured more than they revealed to those who read them.
On the face of it, all the firms did what they were supposed to. Kingston Smith warned the trustees, while PwC and PKF Littlejohn raised their own concerns within the ‘limited nature’ of their investigatory briefs. Yet these warnings lacked sufficient strength to raise the alarm bells that the charity was on the brink of collapse.
Such repeated warnings should have had an impact. They didn’t. Perhaps this grimmest verdict about the limited nature of some professional services work and the value it provides.
Richard Crump is editor of both Accountancy Age and Financial Director