How do we judge a charity? Very badly, it turns out. Until The Spectator revealed the full horror of Kids Company in July, not even the press had asked hard questions of the charity or its founder, Camila Batmanghelidjh. The subsequent political scrutiny showed our democratic process at its best.

When Paul Flynn, a veteran Labour MP, told Batmanghelidjh at an electrifying House of Commons hearing to stop talking ‘psychobabble’ he stripped away in an instant the glitz that had allowed one small charity whose sole qualification was the charisma of its leader to fritter away £48 million of taxpayers’ money. ‘We do not live on the moon,’ Flynn told her. ‘We represent areas that have great problems. We know about them. So do not treat us as though we are the Prime Minister and you are trying to get £30 million out of us.’

The spectacular failure of Kids Company and the hollowness of many of its claims put the government in a bind. Small, local charities are often the best way of helping troubled young people who have been let down by the state. This government wants to use the third sector, but it appears to lack any means to hold it accountable. How do you know if a charity is changing lives — or merely splurging £300 on trainers? The government clearly has no idea. The matter is now urgent. How many more Kids Companies can this government — or we — afford?

For the past decade I have looked at charities while investigating the care system and trying to help one south London gang. Here is a common-sense approach to judging charities.

The first question to ask is: who uses the charity, and in what numbers? It is surprising how many charities with marvellous PR and facilities are not very popular. On my first visit to Kids Company in 2005, one problem was immediately obvious. There were no kids. On my second visit the kids were there — but only to collect the cash doled out in envelopes every Friday. This observation did not need sophisticated analysis or investigation. What it did need was two unannounced visits, something the government, wealthy donors, the media and even the charity’s own trustees apparently failed to carry out over 20 years of Kids Company’s existence.

The second move is to question the people using the charity. It is not good enough to talk to the people whom the charity has lined up for you to meet. Two articulate and presentable young black men made the same complaint to me. The two charities they were involved in deliberately kept them dependent in order to have them available and on site to impress donors.

It is important to hold these conversations away from the staff and preferably off the premises, in a nearby café for example. The young people I talked to were often drug addicts, criminals and prostitutes. They nearly all had mental health problems. That did not stop them holding strong views on whether a charity was any good. Their views should be listened to. Ten years ago the young people I met at Kids Company, despite payouts, complained about the charity. They have been proved entirely right. The gang I befriended talked bitterly about a small charity on their estate in West Norwood. The woman running it, like Camila, inspired confidence. In fact she was stealing money and running a scam.

The views of the people using the charity should be solicited independently of the charity staff — and listened to.

If these two basic principles had been followed, Kids Company would have been exposed years ago and £48 million better spent. It really is that easy.

The third question is more difficult to gauge. How effective is the charity over the long term? Is it really changing lives or merely satisfying an immediate need?

A charity may dazzle you with all kinds of statistics to prove its long-term effectiveness. Treat such figures with care. Kids Company told one young man he had to retake GCSE English and Maths. The fact that he already had a C in both made no difference to the charity. They insisted he resit the exams so they could include his pass in their results. Obviously it is a lot easier to achieve a pass with someone who already has the qualification than with an illiterate hoodie.

There are other ploys to watch out for. Charities that work with the homeless, ‘Neets’ (young people not in education, employment or training) or the long-term unemployed may claim a ‘number of people getting into jobs’. It is important to look at the quality and the sustainability of the jobs. Are the charities merely funnelling people into dead-end, short-term work? If someone who has been long-term unemployed starts a job, even if they only work for a day, the charity gets to tick its into-work statistic box.

To understand if a charity is effective, we need to track the people it has helped. What has happened to them after, say, a year? How many are still employed; are holding down a tenancy; have completed an addiction programme and stayed clean? How many offenders have not re-offended in that period? These are the statistics that count. These are the statistics that tell of lives transformed (or not).

The opposite was happening at Kids Company. There, adults in their twenties and thirties still received money from the charity. Staff and young people complained Camila had favourites: ‘They rely on her and she likes to feel like a mother to them. She paid their rent, gave them cash every week and bought clothes for them. Indeed, if they tried to be independent, she cut all contact.’ A friend working in a charity helping victims of horrific abuse noticed this trait in one of their psychotherapists. ‘She wanted to hang on to the young people. She needed them to need her. In the end we had to let her go. She was actually harming the kids.’

A fourth question to ask is whether the charity is actually required. Is another one doing the same job better? Often people assume a big-name charity is ‘better’, when actually it is a small local charity that is really helping. This is particularly important because there is now such competition for funding. So many amazing charities lost out on funding to Kids Company — the bigger PR draw and the more fashionable but less effective option.

The final question is: does the charity put the people it helps first — rather than concentrating its efforts on what is convenient for staff or seductive to donors?

You may find a charity that cuts programmes because it suits staff to do so. For example, a youth- or gang-related project may run on Monday to Thursday nights but, because the workers want a break, be closed on the most troublesome Friday and Saturday nights. This is often the case with statutory offerings, or charities that were formerly run by local government.

Some charities offer programmes that appeal to staff and give middle-class donors a warm glow but which hoodies dismiss as a waste of time — putting on a play or sloshing paint around, for example (although it should be said that for other groups these can be effective).

A person-centred charity would understand that it had to reach out to the hoodies rather than wait for them to turn up. I was always sceptical of Camila’s claim that large numbers of youth referred themselves to her centres. The gang I befriended refused to use any of the charities I found because it meant leaving their block and crossing territory belonging to another gang. Who would put their lives in danger for a Kids Company lunch, however well cooked? As soon as they could, they started using mini-cabs. So a question for a charity purporting to reach gang members is: how are they getting to you? How will you manage the violence when they encounter other gang members on your premises? (Another good reason that I was given for not attending.) If, for example, a charity approached me for funds and it was using a van to go into estates and make contact with disaffected youth, I would be intrigued. That would show that it understood the problem and was trying to do something unusual to fix it.

The lesson here is that government has to understand the problems before it can spot the imaginative solution. The challenge is to develop the tools to compare charities and check their effectiveness without stifling their unique qualities. That, says Chiku Bernardi of Impetus Private Equity Foundation, means building a culture of transparency and accountability into these organisations that is helpful rather than a bureaucratic obstacle.

Impetus-PEF finds charities and social enterprises that have a promising track record and helps them with management support, expertise and funding. The key to success, says Chiku, is to work with the charities over a number of years. What data is a charity collecting? Is it learning from that data? Is it evaluating to improve or merely to prove? Her organisation is helping small charities with good ideas ‘grow into an organisation which can reliably and predictably produce meaningful social change’. In other words, into the sort of small charities that can deal with government.

Kids Company should be a lesson in the danger of funding only those charities that know how to deal with government — and how to self-promote. But it does not show that small charities with zany ideas are all bad. After the disaster of Kids Company, the temptation for government is to retreat into the comfort and safety of regulation. That would be sad. It is self-defeating to turn charities into an extension of the welfare state that has already failed these young people. The government is right to try to use small charities and right to want to make sure their work is effective and taxpayers’ money well spent. They should start by asking a few commonsense questions.