4Children collapse: the deciding factors that led to administration

Following more than 30 years in existence, charity 4Children entered administration on 31 August.

The vast majority of services - made up of children's centres, nurseries and youth work provision - were handed over to Action for Children, local authorities or other voluntary sector providers. In total, more than 1,000 staff transferred to new employers - although about 45 redundancies have been made, affecting mainly head office staff.

Just one year after the collapse of BAAF Adoption and Fostering and Kids Company (see below), how has another major children's charity got into financial difficulties?

Rapid growth

4Children grew rapidly in recent years - both its income and outgoings roughly trebled between 2010/11 and 2014/15. In 2011, it managed 40 children's centres, but by 2014/15 this figure had increased to more than 100. The number of nurseries it managed also grew.

This period of growth coincided with the formation of the coalition government and the introduction of austerity measures that led to local authorities outsourcing more children's centres and early years provision to make savings.

4Children's annual report for 2010/11 states the charity was in a good position to benefit from the tough public sector funding climate.

"With financial pressure on the public sector purse, it is inevitable that local authorities will seek to achieve ‘more for less' in partnership with third sector social enterprise," the report says.

As a result, extending the charity's role in children's centres and extended schools was identified as a priority for the three-year period up until March 2014.

In October 2014, 4Children borrowed £700,000 from Big Society Capital - a body set up by former prime minister David Cameron to encourage charities to adopt a more commercial approach to delivering public services - to further expand service provision.

Financial decline

However, it appears that what began as an advantageous situation for 4Children left it exposed when the funding climate deteriorated.

At first, councils were able to trim their children's services budgets, but the need to make ever deeper savings has resulted in the closure or downgrading of many children's centres and the requirement for existing providers to do more for less in order to retain their contracts.

4Children's 2014/15 annual report, in which it revealed a loss of £2.8m over the year, indicates the charity was struggling to cut central costs in response.

"Economic conditions continue to be difficult and we have not responded as well as we would have liked to that environment, particularly by not making the savings required in delivering and supporting our services," the report states.

It also lists six of 4Children's eight main sources of income for that year as local authorities - Essex, Gloucestershire, Wiltshire, Plymouth, Worcestershire and Hampshire.

Research conducted by CYP Now earlier this year found that taken together, those six councils made proposals to close or downgrade services at 138 children's centres during 2015/16. This included 43 in Hampshire, 36 in Worcestershire and 25 in Essex.

The charity had insufficient reserves to weather the worsening economic climate.

4Children chief executive Imelda Redmond, who joined in March 2015, revealed the £2.8m operating deficit ate up all its reserves and pushed the charity £1.4m into the red (see box).

But her predecessor Anne Longfield, who became Children's Commissioner for England in February 2015, says she left 4Children in "good shape".

"When I handed over the reins after over 20 years leading it alongside an extraordinarily committed group of trustees who had ambitious vision, I considered it to be in good shape with a bright future ahead of it," she says. "We were winning major new contracts and had secured new investment.

"Like many businesses, our income and expenditure fluctuated from year to year. We invested in developing new services, which is always a risk, but was one I considered worth taking to support more vulnerable children and families.

"The organisation had a strong business plan with plans to develop children centres into family hubs, to develop and deliver new support for young people, and to work with local authorities to develop new models of preventative support for children on the edge of care.

"In a charity like 4Children, there is a constant need to innovate, shape policy, win new contracts and fundraise.

"If new contracts weren't won and funds not secured, then problems could have developed and business investment could have turned to debt."

Government support

In addition to generating income from delivering services, 4Children was the government's strategic partner for early years and childcare. It also received grant funding from the Department for Education's voluntary and community sector grant scheme.

It received £1.2m a year in both 2011/12 and 2012/13, but by 2015/16 this had dropped to £359,000.

Meanwhile, there was an absence of clear direction from the government on future policy relating to children's centres.

A consultation on the future of children's centres had been due to launch in autumn 2015, but is yet to be published.

Sir Paul Ennals, former chief executive of the National Children's Bureau (NCB), says this delay has left charities like 4Children whose income was so dependent on that sector exposed financially.

"There is no doubt that the government's delays in developing its thinking on the future of children's centres has meant that many providers have been left swinging in the wind," he says.

"But the nature of charities is that they can determine their own direction. 4Children grew fast on the back of contracts and while they had a diverse range of separate contracts, since all of them were in similar business, they were vulnerable to the taps being turned off across all areas."

Ennals says the growth of 4Children from a small policy-oriented organisation, with a small turnover, to one that supported many children and families left them vulnerable.

"I don't blame Anne Longfield, and I certainly don't blame Imelda Redmond either," he says.

"They have simply been one of the inevitable casualties of public sector cuts and government indecision.

"In 2010, I had to negotiate massive cuts in NCB's funding; I laid off large numbers of staff, and shrank NCB back down towards the size it had been when I joined it. When funding was available we grew to use it; when resources shrank, we adjusted to the new market. So I am not going to throw any stones at my successors in the sector who are having to do similar."

The Charity Commission says it is looking into the circumstances of 4Children's collapse and is liaising with the charity's trustees and administrators.

A DfE spokesperson says: "We are working closely with 4Children and Action for Children to make sure that disruption is minimised for children and families.

"We are confident that Action for Children will successfully deliver our work with the early years sector and no public money will be lost as a result of this transition."

Troubled times for children's charity sector

July 2015 BAAF Adoption and Fostering announced it was closing with immediate effect due to "significant changes and prevailing economic conditions", with many of its functions transferring to children's charity Coram.

August 2015 Kids Company collapsed amid financial problems and news that police were investigating claims of sexual abuse, found to be unsubstantiated. A parliamentary report published in February concluded that the children's charity got into financial difficulties because it had a "doctrine" of never turning a child in need away and failed to accumulate cash reserves to act as a safety net when finances became stretched.

August 2015 The Children's Rights Alliance for England and Just for Kids Law announced on that they had merged. A statement issued by the charities said they were "keen to harness each other's strengths, while pooling resources in financially straitened times".

4Children chief executive: ‘Charity had insufficient reserves to weather funding storm'

Imelda Redmond, chief executive of 4Children at the time of its collapse, says insufficient reserves and the significant operating loss were key issues in the charity's demise.

The operating deficit of £2.8m in 2014/15 resulted in a dip in reserves from £1.2m to -£1.4m by the start of 2015/16.

But Redmond says that during 2015/16, the deficit was reduced to £122,000. "In my first year, we worked really hard to reduce all our costs and we got the deficit down - we were on the right track," she says.

However, when 4Children lost three contracts in early 2016 - service provision being taken back in house by two local authorities and another contract going to a different provider - Redmond says it was unable to recover.

"We had no resilience to weather that," she says. "4Children grew quite rapidly and it borrowed money to do that - what it didn't have was the reserves to really stabilise it when you grow as an organisation."

Redmond says the trustees considered the situation and decided the most important thing was for the services to have a "safe landing" elsewhere.

"That was absolutely the right course of action," Redmond says.

She adds that the situation was "complex" and does not apportion blame to any person or organisation.

"I don't want anyone to be blamed - local authorities weren't behaving badly, they are in charge of their own services."

However, she does express concern about the apparent lack of direction from the government on children's centres in light of the delayed consultation on their future.

"It is a real shame that when ministers announced they were going to do a review, they didn't act on it," she says.

"People have gone and done what they had to do - local authorities are dealing with reduced budgets, and have done it in the vacuum created by failing to follow through on the promise of a review.

"It is always much better when you know why you are doing something."