The Home Office Missed Repeated Warning Signs That An LGBT Charity Was About To Collapse
Following an investigation by BuzzFeed News into the closure of Broken Rainbow, the National Audit Office has delivered a devastating report criticising regulators and the charity's CEO.
An inquiry by the official public spending watchdog has found that serious failures of oversight by the Home Office, the Charity Commission, and the leadership of Britain's only national LGBT domestic abuse charity led to the charity's chaotic collapse last year.
In a damning report published on Thursday, the National Audit Office said Broken Rainbow, which received £1.4 million in grants from the Home Office, had been allowed to continue operating despite obvious warning signs that its spending was out of control, and with no monitoring of whether it was complying with the terms of its public grants.
The charity, which received the funding to provide a helpline, along with face-to-face and online services, for LGBT people in abusive relationships, went into liquidation in June 2016.
Shortly after its collapse, an investigation by BuzzFeed News, based on thousands of pages of internal files leaked by a whistleblower, revealed lavish spending by the charity, as well as allegations of serious financial mismanagement. That investigation prompted Bernard Jenkin, chair of the House of Commons public administration select committee, to urge the NAO to launch an inquiry.
The watchdog's newly published report detailed regulatory failure across government and compared Broken Rainbow's demise to that of the south London charity Kids Company.
The NAO found that the Home Office had missed the warning signs about the charity's finances from Companies House, and had sent a grant agreement to the charity that was "almost a completely blank template".
The Charity Commission was criticised for neglecting to investigate the charity promptly despite concerns being raised by some trustees, while HM Revenue and Customs had failed to notify the regulator of the charity's unpaid taxes. All these public bodies, the NAO said, had failed to communicate with each other.
The Home Office told BuzzFeed News that it would “carefully consider the NAO’s findings”, while the Charity Commission admitted that “there are clearly lessons here for us to learn”.
The report also severely criticised the charity's former CEO Jo Harvey Barringer and characterised its trustees as insufficiently informed. Management was “chaotic and did not comply with regulatory requirements over a number of years”, the NAO said.
This involved “spending much more than its income for a number of years before its closure” and meant a 97% reduction in reserves available in just two years as well as the charity “operating ‘hand to mouth’ for at least a year before it closed”. In the final year of its existence, Broken Rainbow had less than £500 in the bank “on most days”.
As a result, HMRC is still owed £34,000 in unpaid taxes.
The NAO highlighted the “low morale of staff”, a “breakdown of relationships between the trustees, CEO and the organisation” and “multiple grievances … against trustees and staff members alleging bullying, harassment and improper conduct”. There were four employment tribunals in its 12-year history, one of which cost over £20,000 – equivalent to about a fifth of the Home Office grant.
It also revealed that it had been "unable to establish a complete picture of Broken Rainbow’s finances in its final year as the charity’s records were deleted remotely shortly after the liquidators seized the charity’s computers. There is disagreement between the trustees and former CEO about who was responsible for this.”
Barringer is revealed as receiving large sums of money from Broken Rainbow, including “32% of payments from the charity’s bank account” between April 2015 and July 2016, totalling £114,397.
From November 2015, the report said, Barringer alone had authorised payments, despite it being standard practice to have “two signatures to authorise payment from charity bank accounts”.
According to the report she was sacked for gross misconduct in May 2016.
Barringer did not respond to requests for comment on the report's findings. But at the time of the BuzzFeed News investigation last year, she denied that the charity's finances were mismanaged. Her legal representative said: "On the contrary our client has worked tirelessly in the face of constant funding pressures and ensured that Broken Rainbow could continue to operate for many years.”
Two other, concurrent investigations into Broken Rainbow are ongoing, the report said: one by the Charity Commission and the other by the insolvency practitioner. Depending on the conclusions of these probes, various further action could be taken against the charity and its staff, including preventing them from being trustees or directors of any other charities.
The insolvency practitioner could also “recover funds through the courts from either the trustees or the former CEO if it considers that they have acted illegally”, the report said.
The main findings of the NAO report on the regulatory failings over Broken Rainbow are:
· The Home Office failed to monitor the grants it gave.
With no annual reports ever received and patchy performance data supplied by the charity, “the Home Office did not have even the very limited information required on its monitoring forms, which in any case fell short of the requirements set out by the grant agreement.” In a parallel with the Cabinet Office's handling of Kids Company, the NAO said the failures of the Home Office to oversee the charity prevented it from being able to “detect failure and early warnings of it”.
· No one in government knew exactly what was happening, despite the government being its biggest funder.
“Many different parts of government had some information about Broken Rainbow’s difficulties, but none had the complete picture," the NAO found. This meant that when Companies House published its intention to close the charity in March 2016, the Home Office had no idea, and “signed a grant agreement in April 2016”. During this period there were “several different bodies engaged with the charity, unaware of the other interventions taking place and of how close Broken Rainbow was to closure."
· The monitoring that did take place ignored the warning signs.
Despite the charity spending “13 times more than planned on travel and subsistence, four times more on staff salaries and three times more on software”, the Home Office “considered that no monitoring reports provided by the charity raised concerns about its solvency”.
· The information the charity provided the Home Office showed its failures but still this did not prompt action.
“Where data were included, they covered the number of calls to the helpline and contacts made in person via the Broken Rainbow office and online email support. This did not meet the requirements set out in the grant agreement.” Meanwhile, the Home Office “did not request information from Broken Rainbow on the quality of the service provided or on any other aspects of the helpline’s performance”.
· The Home Office grant agreement was flawed.
Two versions of the most recent grant agreement were supplied by the Home Office to the National Audit Office. The first “had not been signed either by the Home Office or by Broken Rainbow”. The second “was almost a completely blank template, which had been signed by the grant recipient”. There was therefore insufficient clarity of “the purpose of funding”, with the grant holder being “unaware of its responsibilities”.
The Charity Commission, the report found, “does not have the capacity or capability to proactively monitor every charity on its register”, and “does not have the resources to review every set of accounts it receives”.
As a result, it said, “some trustees told us that they had contacted the Charity Commission seeking advice on how to manage to problems the found at Broken Rainbow, but had received no response”. This included an employee warning the commission in August 2015 about what was happening at the charity, including the “excessive spending of charitable funds”, but the commission “assessed the case as low-risk”.
By the time the commission revisited the case, in January 2016, it discovered that only two of the seven trustees were registered with Companies House and the charity’s governing document “suggested the organisation may not have been exclusively charitable, in breach of charities legislation”.
Furthermore, the report said, the Charity Commission’s “website contained errors about the charity including that Broken Rainbow had submitted its 2015 accounts when in fact the Commission did not have them".
Finally, “it only became aware that the charity had gone into liquidation in June 2016 from media reports”.
But its apparent failures also arose from the failures of other agencies, according to the NAO. Most notably, HM Revenue & Customs “had not notified the Charity Commission that Broken Rainbow had tax outstanding”. This was in breach of a signed agreement between the two organisations. HMRC declined to comment on the allegation when approached by BuzzFeed News.
The NAO made several recommendations, adding that “there may be wider lessons from this example”. In particular, it said the way the Home Office oversees charity grants should be improved.
“Although the Home office has since revised its financial monitoring arrangements,” said the report, “these do not cover monitoring the financial health of providers, which can provide early warning of impending failure.”
The report included a 10-point plan for all government departments to consider implementing before issuing further grants, including “robust grant agreements”, “defining outputs", and “due diligence and fraud risk assessment”.
The Home Office said that while it would consider the NAO’s findings carefully it would be inappropriate to comment while other investigations were ongoing.
And in a statement, a spokesperson for the Charity Commission told BuzzFeed News: “We are a risk-led regulator focused on applying our limited resources where they have the most impact. That includes taking tough action in the most serious cases of abuse and mismanagement in charities, as our increased number of compliance cases show.”
It concluded: “We welcome the NAO’s recognition that balancing the burden of regulation on small charities whilst ensuring sufficient scrutiny poses challenges. There are clearly lessons here for us to learn, which we have already started to address through our transformation programme, which is improving our ability to prevent, detect and tackle mismanagement in charities.”
The former chair of the trustees Robert Brown told BuzzFeed News: "Working with the former CEO of Broken Rainbow UK was a nightmare ... The report clearly vindicates the work and actions the Trustees undertook to try and save Broken Rainbow UK’s vital work in its entirety ... I feel honoured to have been able to save vital Home Office funding, and many jobs, working with the CEO of Galop [which now runs the helpline] and others to ensure services continued uninterrupted."
BuzzFeed News contacted representatives for Jo Harvey Barringer but did not receive a response prior to publication.