A package of British Association of Adoption and Fostering (BAAF) functions, which staff claim brought in around £2m in income last year, was sold for £40,000 to ensure the services were not shut down, according to the administrator overseeing the charity’s closure.
Matt Dunham, a partner at the firm Smith and Williamson, told Community Care that BAAF had run up a deficit in the region of £1m by the end of the 2014-15 financial year and was “rapidly running out of cash” by the time administrators were called in.
BAAF would not have had the money to pay wages in August, and therefore needed a resolution within six weeks of the administrators first being called in on 15 June, Dunham told Community Care. He also revealed that, for a period at the beginning of this year, BAAF were using restricted funds to pay for unrestricted services.
Eyebrows have been raised about the £40,000 fee paid by Coram for a number of BAAF’s services. One former BAAF senior manager has claimed the functions were worth at least £2 million in grant funding and annual income and £40,000 represented “a poor return” for the services.
However, Dunham said the price was due to there being a limited market of organisations they could be sold to, and a limited timescale in which to do it.
“You’re selling something that is very bespoke and for a particular market,” he said.
The decision to transfer the functions to a new entity, CoramBAAF, part of the charity Coram, was judged as a better recovery because it could continue providing services for BAAF members and “serve the charity’s objectives”, he claimed.
The alternative for items like BAAF’s stock of books would have been to sell them on the open market, where purchasers would not have an interest in safeguarding the charitable objectives of the books.
Dunham said the cash BAAF required when administrators were called in was in the hundreds of thousands of pounds, and meant that a sale of services was the best option.
The decision to make sure services could be transferred to Coram on the day BAAF announced closure was to avoid a potential situation where all of the charity’s services would have been closed down, Dunham made clear.
“What I was very concerned about was getting to the point where we were at the end of July, and had no-one [to transfer services to], and it would have been another Kid’s Company,” he said.
Letter to administrators
The comments come as it emerged that a former senior manager at BAAF had written to the administrators raising concerns over the way the closure has been handled. The letter, which has been seen by Community Care, questioned the price at which BAAF services were sold, and why the fundraising team were never informed or brought in to help with the financial difficulties facing the charity.
Dunham did not respond directly to the contents of the letter. However, he did say that emergency fundraising was considered, “but the amount of money [required] would have been so significant that it wouldn’t have solved the problem”.
“There will be concerns that some people were left in the dark, the problem is to make something like this work to the level we could, we can’t do that in the public domain. As soon as we start talking about ‘we’re going into administration’, all the creditors will demand cash, people will want compensation, that means your six weeks becomes three weeks,” he said.
He added that an attitude of ‘business as usual’ was maintained to mean the services that would be transferred weren’t harmed. Any party who paid money to BAAF for services they would no longer receive would have the money paid back to them, Dunham said.
Also in the letter was a question of how precarious BAAF’s finances were at the time of closure, as the letter said accounts published for 13-14 showed a surplus of £0.16 million.
Restricted spending deficit
Not responding directly to the letter, Dunham said such breakdowns do not include the charity’s deficit on restricted spending.
The latest published financial accounts for BAAF cover the financial year up to March 2014. These show that the charity spent £2.9m on restricted fund projects in 2013-14, while restricted fund income was £2.5m. This left a net income gap of £410,171 in restricted funds in the year to March 2014. When factored in with a £163,210 surplus generated in unrestricted funds, this left a £246,000 income gap. These are the figures the administrator pointed to when asked where the income deficit lay.
However, ex-BAAF staff who contacted Community Care have questioned this interpretation of the restricted funds balance. They point to figures showing BAAF had carried over £1.13m in restricted funds into the 2013-14 financial year. Even with the £410,000 income gap that emerged in 2013-14, this still left the charity with £721,761 in restricted funds to be carried over into 2014-15, they said.
Felicity Collier, chief executive of BAAF between 1995-2006, said that if the accounts for 12/13 and 13/14 had been combined, the restricted income of that period would have covered the restricted costs and there would have been no ‘restricted deficit’.
“These are not finite restricted services which have annual income and expenditure and make annual surpluses and deficits. The system runs on the basis that you start each year with an opening balance, add what new restricted funds come in and deduct what expenditure takes place in that year on those restricted services, leaving you with an amount to carry forward at the year end,” she said.
Use of restricted funds
Administrators have found that restricted funds at the charity were not kept in separate bank accounts from unrestricted money, and at the beginning of 2015 BAAF were using restricted funds to pay for services that fell outside their conditions.
Sources have told Community Care that as late as March this year, the board were being advised by the financial department that they had sufficient funds and there were no financial worries. The board was not aware of the use of restricted funds at the time.
An extract of minutes from a financial performance meeting held by BAAF’s board on 15 March shows that the board approved an overspend of up to £850,000 from the charity’s reserves to plug income gaps in 2014-15. The minutes said that any “additional gap” would have to be met from cost savings in 2015-16. A 2015-16 budget was also approved at the meeting. The same minutes show that Caroline Selkirk, BAAF’s chief executive, acknowledged that the organisation faced “some challenges” but said that the charity was “not in a crisis” and steps had been taken to mitigate risks through the 2015-16 budget.