The National Audit Office (NAO) is warning that the government’s supervision of the grants it gives to charities remains inadequate and says it needs to improve its monitoring, particularly in light of plans to give an additional £102m from fines from criminal activity in the banking sector (the LIBOR fines) to charities and good causes over the next four years
The watchdog made the comments following its inquiry into the collapse last year of the Broken Rainbow LGBT Domestic Violence Service UK, known more widely as Broken Rainbow, which was founded in 2004 and funded by the Home Office, including an annual grant of £120,000 since 2010.
The public administration and constitutional affairs committee asked the NAO to look at the charity, following media suggestions of poor governance and excessive spending, to see whether the lessons had been learned from the earlier and well-publicised collapse of the charity Kids Company.
The NAO found that Broken Rainbow had been struggling financially for a number of years, and that its overall management processes were ineffective. The watchdog said some of this was evident from public documents, but none of the government bodies with which it had contact were fully aware of the difficulties, or had a clear remit to intervene.
For example, Companies House had published in March 2016 notice of its intention to close Broken Rainbow, but the Home Office was unaware of this when it signed a grant agreement in April 2016. The charity subsequently went into administration two months later, in June.
As regards Broken Rainbow’s administration, the NAO found its reserves shrank by 97% in two years, from £80,083 in 2012-13 to £2,307 in 2014-15, despite income increasing by 52% over the same period. The biggest increases in spending over that period were not on core helpline activities, but on consultancy (which increased by £16,000), research (£27,000), campaigns (£25,000) and total staff costs (£17,000).
Between April 2015 and its closure in May 2016, Broken Rainbow had less than £500 in its bank account on most days. More than half of each grant payment from the Home Office, intended to cover costs for the following three months, was spent within 24 hours of receiving it. Most of the payments were spent completely within three days of receipt.
The charity had few organisational policies in place, and those that were in place were not followed. For example, staff were asked to put office expenses on personal credit cards because suppliers had not been paid; and conflicts of interest and grievance procedures were not managed effectively. The NAO found that Broken Rainbow missed filing deadlines, and that the Charity Commission’s website contained errors about the charity.
The NAO is also critical of the government’s lack of oversight. The grant agreement signed by the Home Office and Broken Rainbow required the charity to submit an annual report and quarterly information on the performance of the helpline. No annual report was ever received and many of the quarterly returns contained no performance data and the data reported did not contain quality measures.
The NAO concedes that the size of the charity and the amounts involved were small, but says there remain lessons to be learned, pointing out that grant funding to the charitable sector from the whole of government totalled £970m in 2014-15.
While departments do not have the resources to manually monitor other government websites that may contain information about grant recipients, the NAO says they could consider making better use of automated monitoring of publicly available information and use this to trigger alerts, which would help to target scrutiny. For example, if the Home Office had automated monitoring of the Companies House website it would have known that Companies House was proposing to close Broken Rainbow before it agreed to extend the grant.
In addition, government could be more ambitious in the information it asks for from recipients of its grants. The NAO suggests departments could routinely ask to see the format of monitoring information provided to other funders to allow them to reach an informed judgement about how to balance the need for proper scrutiny of grants without imposing significant additional costs on recipients.
The NAO states: ‘The government has made a number of changes to the supervision of grants since the collapse of Broken Rainbow, but more could be done to ensure that it makes the best use of the information it holds.’
The NAO report on the funding and governance of Broken Rainbow is here.
