A4e controversy: now even Emma Harrison’s charity feels the heat

For A4e, it seems things go from bad to worse. Yesterday I reported it had failed to make the cut for the £1bn Department for Work and Pensions health assessment contract framework.

It has now emerged that the business advice charity created and chaired by A4e founder Emma Harrison, and bankrolled by her company, has lost its first ever public services contract, just days after having won it.

Conservative-controlled Richmond council awarded a charity business skills training contract to FSI, at the end of March after an open tender. But after a 10 day cooling off period, the authority got cold feet and pulled out, blaming what it called the “potential risks” involved.

For all FSI’s protests that it is not part of A4e but a “separate and independent organisation”, the west London council said it couldn’t risk letting a contract to an organisation so financially dependent on a funder currently under investigation by the government. Ministers have threatened to terminate A4e’s multi-million pound contracts if they uncover evidence of systematic fraud in its work programme contracts

This is a blow to both the charity – its full name is the Foundation for Social Improvement – and to Harrison, who created the charity in 2007 to provide free business, marketing and fundraising advice to small charities, and whose company has since funded it to the tune of £1m. FSI protests it is “not overly reliant on any one funder”. But Richmond, it seems, is not convinced.

The £85,000 a year contract was to provide business advice and “capacity building” to help local charities compete for contracts. While puny by A4e standards, it was FSI’s first step into the emergent public services market. Within days of news of the award breaking, however, it was cancelled:

Richmond council explained in a statement:

During the Alcatel mandatory standstill period, the 10 day pause between a contract award decision and the formal award of the contract, we have examined all the facts regarding this procurement. Subsequently we have decided that we will no longer be continuing with this procurement process, and therefore will not be awarding the contract to FSI or any other organisation which tendered for the contract.

The statement added:

“As one of the major funders of FSI is currently under investigation, we were concerned about the potential risk involved in the delivery of the service.”

The standstill period is a 10 day “cooling off period” which allows unsuccessful bidders to challenge contract awards before the contract is signed. It is unclear what if any representations were made by bidders to the council about FSI/A4e, (or why the council appeared to examine “all the facts” only at the 11th hour) but it is known the local voluntary sector had concerns about the apparent financial vulnerability of FSI.

What is clear is that the contract award was not universally popular locally. Councillor Stephen Knight, Leader of the Liberal Democrat Opposition, was quick to raise objections to the award:

“It beggars belief that Richmond council is intent on handing a contract to the A4e group of organisations, while the government and police are investigating evidence of…fraud and mismanagement. Local residents will be shocked that the Tories are intent of pulling funding from the local Council for Voluntary Service and instead handing a contract to a scandal-hit organisation based in Westminster.”

Technically, of course, FSI is not of course part of A4e; nor is it itself scandal hit. As FSI protested in a statement:

“The FSI is an independent charity that provides strategic capacity building to small charities and community groups nationwide. The FSI relies on no single source of revenue instead, as is best practice, building a balanced pool of funding across voluntary, earned and statutory income.”

But how independent is FSI? Financially, FSI has been critically dependent upon A4e’s generosity. Four years’ accounts, up to April 2011, show A4e Ltd has given almost £1m (with another £100,000 pledged for 2011-12), equivalent to 58% of FSI’s total £1.48m income over the period. A4e also provided FSI with free accommodation (in its London HQ), heating and rates over this period.

Even with this level of support (and A4e staff are also encouraged to fundraise for FSI, according to the charity) expenditure exceeded income last year by nearly £100,000, despite a gift of £150,000 from A4e. FSI’s latest accounts showed FSI had assets of just £8,806, a figure that will raise eyebrows among charities used to the stringent financial qualification rules required to compete for public sector contracts.

The two organisations are tightly interlinked. Two of Harrison’s fellow FSI trustees are A4e directors: group chief executive Andrew Dutton, and director of marketing Jo Blundell. A4e’s executive chairman Mark Lovell was a founding trustee (but quit last year). One of the seven staff members listed on the charity’s website is on secondment from A4e. (None of the trustees, I should add, have taken a penny in remuneration or expenses).

Moreover, the two organisations appear to have business relations. Giving evidence to the Commons public accounts committee in February (see Q173), Dutton told MPs that A4e helped prepare its potential charity sub-contractors for the work programme by referring them to FSI:

“We put them in touch with the Foundation for Social Improvement, which capacity-builds charities, so that they can absolutely think through the contract that they are signing.”

FSI, which was a sponsor of the Guardian’s small charity awards in 2010 and 2011, has tried to diversify its income stream (the A4e donations were scheduled to come to an end in 2012-13), but its accounts show that this has been tough going. A4e’s contribution to FSI’s annual income has come down from 85% in 2008 to 39% in 2011. It earned consultancy income of £164,000 in 2010 (£35,000 the previous year), but this halved to £82,000 in 2011.

Over the past year, FSI told me, it had become even less dependent on A4e donations although the welfare to work company’s largesse still accounted for a quarter of its income. A spokesman said:

“In 2011-12 consultancy income was the FSI’s largest funding stream with the balance coming from a variety of voluntary sources. We do not envisage income from any single source representing more than 25% of total income in the current budget period.”

Richmond has said that if it decides to retender the contract FSI would not be precluded from submitting a bid – but hard as it tries to distance itself it is hard not to see its future influenced by the fortunes of A4e. Like many of the small charities it advises, FSI would appear to be feeling the pinch.

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