The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall Contents

2Governance of Kids Company

The Kids Company operating model

11.Kids Company ran a demand-led operating model, which enabled young people to refer themselves to the charity. The charity’s central premise was that no child should be turned away.17 In its 2012 Annual Report, Kids Company claimed that self-referrals accounted for 97% of its clients.18 Camila Batmanghelidjh, the charity’s founder and Chief Executive, has acknowledged the “challenges to both the capacity and the finances of the organisation” posed by a self-referral model, as the “structure in this country where children and young people, when they self-refer for help, there is no commissioning agent paying for that”.19 She claimed that this self-referral model meant that “increasingly local authorities and health trusts were unofficially signposting clients to us without paying because they were under pressure” and stated that “in 19 years, we did not receive one pence of local authority funding or mental health funding for the cases that we had in our care”.20 The NAO report indicated that the charity has, in fact, received about £2 million local authority funding “to provide specific services”.21 Ms Batmanghelidjh frequently claimed that the Government should fund this shortfall because of her belief that Kids Company was engaging with a large number of statutory cases.22

12.In oral evidence, Ms Batmanghelidjh stated that “letters between Prime Ministers and Kids Company…coloured our decision making” and led the charity to believe that the Government would provide statutory funding.23 The charity’s Annual Reports make similar assertions that the Government was committed to finding a funding solution.24 We have no evidence of such a pledge or intention from Government (see paragraph 127). Mr Alan Yentob, Chair of Trustees at the charity, has since acknowledged that the trustees’ misplaced confidence in forthcoming Government funding was a mistake.25

13.Kids Company’s demand-led operating model - based on the doctrine that no child should be turned away - carried the constant risk that the charity would not be able to ensure that its commitments would be matched by its resources. The charity’s Trustees failed to address this risk. Instead, the Chief Executive and Trustees relied upon wishful thinking and false optimism and became inured to the precariousness of the charity’s financial situation.

Level of reserves

14.A key aspect of Kids Company’s demand-led model was that it always operated on a very low level of reserves. In her evidence, Ms Batmanghelidjh said that Kids Company recognised that it needed to have reserves, but said its “unpredictable income and overwhelming demand from vulnerable children and families” left the charity with “complex choices.” She stated that for Kids Company to be able to build reserves, it would be necessary to “either have proper funding or for the children and families to be taken by statutory agencies”.26 Mr Yentob agreed that “the funds were badly needed for the increasing demands of the children and young people in our care,” but maintained that “the subject of reserves was always a key agenda item at Trustee meetings…and Trustees were very conscious of the challenge facing the charity in this regard”.27 The minutes of Trustee meetings do not indicate a change in approach arising from discussions about a lack of reserves. Both Ms Batmanghelidjh and Mr Yentob stated that Kids Company received clear audits throughout its existence as evidence of proper financial management at the charity. 28

15.Mr Nick Brooks, Partner of Kingston Smith, who audited Kids Company from 2011 until the charity’s closure in August 2015, told us that Trustees should have calculated the charity’s necessary level of reserves “on the basis of a number of months.” He suggested that six months spending (about £12 million) would have been an appropriate level of reserves for Kids Company’s size and demand-led model.29 However, Kids Company sustained free reserves at a fraction of this level throughout its existence; they were in deficit every year between 2003 and 2006, and again between 2009 and 2011, and peaked at £434,282 in 2013 (given that the charity’s expenditure for 2013 was £15.6 million, the charity needed £7.8 million in reserves to meet Mr Brooks’ recommendation of 6 months free reserves. The £434,282 it held for 2013 constituted only 6% of this recommended level).30 The charity’s 2013 accounts are the last that were made publically available.

16.Although the charity’s auditors always signed off Kids Company’s accounts as a going concern, each Annual Report warned that future activity would depend almost entirely on the charity’s ability to secure continuing grant income. Management letters also issued Trustees with repeated warnings relating to potential insolvency and the sustainability of the charity. These warnings did not lead to any perceptible change of policy on the part of Trustees.

17. The 2013 Annual Report was the last annual report produced by Kids Company before it folded. The 2014 year end accounts were never audited or published. In the 2013 report, the Trustees acknowledged that the principal risk to the charity was financial, including “the need for having sufficient reserves.” The charity made little commitment to building these reserves stating only “we aspire to build up our reserves when circumstances allow.” Of the charity’s ten priorities for 2014, working “with Government to identify sustainable and long term funding for Kids Company” was only ranked at number seven. 31

18.Mr Yentob explained that the Trustees had decided that, “because restricted funding was so difficult we would try to find assets in other ways”.32 Following a grant from Morgan Stanley, Kids Company obtained a building worth £1.7 million as a substitute for reserves.33 However, the purchase of this fixed asset did not improve the charity’s liquidity. On the contrary, Mr Brooks confirmed that acceptance of this grant may actually have increased the charity’s liabilities.34

19.Kids Company was not unique amongst charities in its low level of reserves. William Shawcross, Chair of the Charity Commission, stated that a responsible approach to reserves “is a problem for all charities.” He explained:

We advise charities that they should spend their money, and at the same time they must have adequate reserves, so it is quite a hard act for them to follow.35

20.Mr Brooks of Kingston Smith agreed that donors may question the need to donate to a charity with large reserves.36 However, Ms Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission, argued that: “if it is a charity that is providing services or has employees or it is working with vulnerable beneficiaries, the Trustees have a higher duty of care to make sure that their financial planning and their business model is much more robust and the safeguards are there”.37

21.Kids Company had 19 years of statutory audits, but the charity was wrong to take comfort from this. The charity was signed off as a going concern, but the auditors repeated warnings about the precariousness of its finances and the dependency of the charity upon future Government grants. In any case, statutory accounts are audited and published long after the event and do not show the current state of a charity’s finances.

22.The Charity Commission’s guidance warns that Trustees must avoid exposing the charity’s assets, beneficiaries or reputation to undue risk and take care not to over-commit the charity. Kids Company relied on a hand-to-mouth existence and by refusing to prioritise the building of any significant reserves, the Trustees failed to exercise this duty of care towards the charity’s clients, employees and donors.

Cash flow

23.Kids Company experienced significant cash flow issues and struggled to meet its obligations to HM Revenue & Customs (HMRC) on several occasions. As early as 2002, HMRC wrote off tax debts of £590,000.38 In December 2013, the charity requested early payment of a Government grant already allocated.39 As part of this request, Kids Company forwarded to Nick Hurd MP, the then Minister for Civil Society, a letter that the charity had received from HMRC. This showed the charity was negotiating a Time-to-Pay (TTP) payment plan for £726,721, and referenced “numerous” TTP settlements negotiated over previous years.40 HMRC set out in writing that Kids Company’ was “not viable with a business model in its present form. Both the level of your income and its profile clearly does not match the capacity you are operating on.” It also stated that, while “HMRC have provided the Charity with significant support over the last 10 years…it must be stressed that this is the final opportunity we will give to allow you some breathing space to get your tax payments up to date and finances on an even enough footing to ensure that future tax liabilities are paid on time.”

24.Kids Company often relied upon emergency Government funding to help it manage its cash flow. The NAO’s analysis of briefings to Ministers in 2002, 2005, 2007, 2010 and 2015 revealed that “officials accepted Kids Company’s assertions that it would become insolvent without Government grant funding”.41 Government grant payments were released early in both December 2013 and December 2014, and Mr Heaton attributed the decision to pay the entirety of the £4.265 million grant in April 2015 to the charity’s cash flow issues.42 Mr Letwin acknowledged that the charity historically relied upon Government for cash flow, but pointed out that this didn’t necessarily indicate financial mismanagement on the part of Trustees. Instead, he observed that this “may be a sign of quite cunning financial management, just a particular kind, which I don’t happen to think is the right way to do business”.43

25.Several Ministers authorised unorthodox payments (in the form of early Government grants and direct grants) despite knowledge of the charity’s significant cash flow difficulties (see Appendix B for full list of payments made to Kids Company over successive Governments). In one case, funding was given despite the unequivocal assessment by HMRC that the charity’s model was not viable. By continuing to fund the charity’s cash flow crises, successive Governments gave tacit approval to an unsustainable and inadequate business model and eroded any incentive for Kids Company to address its own governance and management failings. This continued Government support at moments of crisis nurtured the expectations of Kids Company that it could continue to rely on Government to prop up its finances.

How many clients did Kids Company really help?

26.In its 2011 Annual Report Kids Company claimed that it “supported some 36,000 clients a year with a range of services,” of which 18,000 were supposedly “receiving intensive programmes of wraparound support”.44 However, when the charity closed, only 1,909 files were handed over to the local authorities (1,699 in London and 210 in Bristol).45 Ms Batmanghelidjh stated that these referral forms “had on them families. So altogether the safeguarding team and the mental health team…handed over between 3,000 [and] 4,000 clients”.46 A former employee also asserted that “the majority of these referral forms related to families rather than to single children”.47 Mr David Quirke-Thornton, Strategic Director of Children’s Services in Southwark and leader of local government’s response to the charity’s closure, said, however, that he physically received these client files and that the 1,699 cases in London were “individual cases not families”.48

27.Kids Company has offered various reasons for this vast discrepancy: that local authorities imposed criteria on the type of cases they would accept (reportedly, only “young people who would be left in need or at risk by Kids Company’s closure”); that Kids Company did not have access to all of its files when completing the referrals; that this data did not include clients the charity worked with through schools, and that its remaining files are currently in secure storage and held by the Official Receiver.49

28.Ms Batmanghelidjh claimed that, following the charity’s closure, “the local authorities got together and had this discussion about the boundaries around the types of cases that they would accept from us and we honoured that boundary”.50 However, Councillor Peter John, leader of Southwark Council, has stated publically that the local authority “set no thresholds and imposed no criteria.” He explained “we simply wanted the details of all their clients so that could assess their needs and offer support as appropriate”.51 Mr Quirke-Thornton has also commented that “the only details that Kids Company said they had withheld were clients who were in the UK illegally” but stated that the local authority also requested these details due to concern about “any children, young people or vulnerable adults who may be in need of assistance under the Children’s Act and National Assistance Act”.52

29.The Official Receiver is holding 87 filing cabinets of client data, but the status of these files (for example, if they represent historic cases, or duplicate other data that has already been shared) is unknown.53 Mr John has commented that, “when the Official Receiver stepped in following the charity’s closure, they found no other files to pass on” to local authorities.54

30.Southwark Council has also reported that Kids Company failed to co-operate during contingency planning for the charity’s closure in May 2015. Mr Quirke-Thornton said that Kids Company refused three formal requests to share client information to enable planning for closure. Kids Company had cited “data protection” concerns, which the Cabinet Office subsequently advised Kids Company were not valid.55 On 2 June 2015, Kids Company did eventually provide a document, which stated that 15,933 “High Clients” were supported in different London boroughs, including clients the charity worked with in schools. No further detail or breakdown of these figures was provided to the local authority, nor to any other party since, and we have not received explanation of whether the description “high” related to high-risk or high-need clients.56 When the charity eventually closed on 5 August, the premises were locked up and a former employee stated that around 18,000 files “were no longer accessible to staff. This seriously impacted the referral volunteers’ abilities to complete referrals”.57

31.Kids Company has also stated that the files handed over to the local authorities do not reflect the charity’s work in schools, which it claimed served 19,000 children in 48 schools.58 According to Mr Quirke-Thornton, however, Kids Company was in fact only “working in 34 schools in 2014–15 and had already ceased work in 3 schools in the 2014–15 academic year.” He explained that “in accounting for their work in schools, Kids Company referred to the benefit to the whole class of them working with an individual child or young person, so they counted the whole class as ‘clients’. I know of no other organisation working with children and young people in schools that accounts for their ‘clients’ in this way due to inferred benefit(s)”.59 Dr Genevieve Maitland Hudson, former employee at Kids Company and now Director of consultancy company OSCA, said that the “use of aggregate ‘reach’ numbers as proxies of effectiveness is particularly unhelpful. It encourages inaccurate reporting and gives very little insight into programme capacity”.60

32.Dr Maitland Hudson also argued that “it was clear even before the handover of client files that the charity’s claimed numbers were unlikely to be accurate.” She stated that she had analysed the charity’s caseload figures and concluded that “based on a calculation using published staff and client numbers (assuming 400 full time key workers and 18,000 receiving intensive support) Kids Company [staff] had an average caseload of 45. That is almost three times the national average in children’s services, which the charity’s leader had repeatedly described as overstretched and unable to cope.” She concluded that “these kinds of caseloads would not have given the charity the capacity to manage the numbers they claimed with the model they described”.61

33.Ms Batmanghelidjh has argued that the charity’s clinical supervisors, staff, trainers and volunteers would have to have “pretended to work with vulnerable young children for us to have engineered a deceit.” She called it “unfortunate that the Official Receiver has all our records and we are unable to access these in order to evidence our statement” and added that Kids Company had invited independent auditors to assess the charity’s numbers, but the charity closed before this audit could take place.62 The Trustees have also highlighted that Methods Consulting independently verified Kids Company’s data and performance figures and “would have raised concerns if they had found evidence that Kids Company had misreported its client numbers in relation to its Government grant”.63 However, Methods was only required to validate the data reported against the Government grant, and did not audit the charity’s publically reported figures (such as the figures of 36,000 reached, and 18,000 reportedly offered intensive support).64

34.A number of visitors to the sites reported seeing very low numbers of children. Sue Berelowitz visited four of Kids Company’s sites in her capacity as Deputy Children’s Commissioner, and reported feeling “disheartened” and “uncomfortable” on visiting the “beautifully equipped environment where you know it should be crammed to the gills and there is nobody there”.65 Tim Loughton MP, Under-Secretary of State for Children and Families from 2010–2012, said that it was “always disappointing” that he did not see many children on either of his two visits (once in opposition in 2008 or 2009, and once in his role as Children’s Minister in 2011) and said that this “gave rise to certain queries as to why these were not in the front line of people that she wanted us to see and have a proper discussion with”.66 Joan Woolard, who volunteered at the charity, also stated that children were “conspicuous by their absence”.67 The Rt Hon Oliver Letwin has also commented that he “did not believe” the numbers that Kids Company reported in their promotional material.68

35.It has proved impossible to reconcile Kids Company’s claims about its caseload with evidence from other sources. The evidence is that the figures were significantly over-inflated. This casts doubt on Kids Company’s claims that overwhelming demand, rather than financial mismanagement, lay at the root of its financial difficulties. In addition, the charity’s practice of calculating ‘reach’, for example in counting a whole class of children as clients if they benefited from work with an individual student, was misleading to donors. Trustees were either ignorant of this exaggeration or simply accepted it, because it helped to promote the charity’s fundraising.

36.If it is correct that Kids Company was unable to refer its vulnerable clients to the local authority once the charity closed, given the locking up of all relevant files, this may be a serious consequence of Kids Company’s failure to co-operate with Southwark Council when planning for a potential closure earlier in the year (see paragraph 155 for recommendation to the Government). Had the charity co-operated earlier in the process, it is likely that full referrals could have been completed and all vulnerable people provided with support. Kids Company’s lack of co-operation thwarted contingency planning and was highly irresponsible. The list of 15,933 “high clients” provided to Southwark Council and the Committee did not assist the local authority, or the Committee, in assessing true need or caseload.


37.Kids Company was subject to very few formal inspections or evaluations. Mr Quirke-Thornton warned that Kids Company had “operated in a regulatory blind spot” and described the charity’s activities as “a 19 year journey in isolation from the rest of the sector.” He explained:

Kids Company claimed that they were undertaking statutory work but they did not cooperate with Local Government, the statutory bodies. They provided education in the form of alternative provision but they were not regulated by Ofsted. They provided therapy to children and young people but they were not regulated by the Care Quality Commission.69

Ms Berelowitz highlighted a further problem with regard to therapeutic services “insofar as anybody can call themselves a therapist and say that they are offering clinical services because it is not a protected profession”.70

38.Kids Company has stated that Trustees dictated that “all clinical workers should have qualifications appropriate to their roles and responsibilities, as defined by their professional bodies, i.e. the UKCP and BACP”.71 Ms Batmanghelidjh held the role of psychotherapist and clinical leader at Kids Company but is herself not a member of the UK Council for Psychotherapy (UKCP). She claimed to have “been speaking to UCKP’s leadership about their facilitating a registration”, however, and holds a “Masters in the Psychology and Philosophy of Psychotherapy and Counselling, with a scholarship for excellence” from Antioch University at Regents College.72 She also stated that she “had a team who helped me with some of the most disturbed children and young people that I was personally dealing with.” This team included a clinical key worker, a clinical director and two senior social workers.73 Kids Company has also stated that the charity’s Clinical Director held two MScs, and is a registered consultant psychotherapist with the Association of Child Psychotherapists.74

39. Other than Kids Company’s early years provision (The Tree House), which was judged to be “good” by Ofsted in 2010 and 2013, the charity’s education programmes were not subject to statutory inspection.75 Ms Batmanghelidjh stated that the charity was, nevertheless, in “continuous dialogue with Ofsted” and claimed that “in Bristol we had our provision reviewed by Ofsted before it got registered” as a provider of education.76 She has since stated that “the inspector was pleased with the teaching provision and requested some minor adjustments, which we completed”.77 Ofsted has confirmed that it was commissioned by the Department for Education to inspect Kids Company’s Bristol provision on two separate occasions. The first inspection (conducted in 17 July 2014) did not recommend registration as the facility was considered unlikely to meet the “necessary standards”, and the second (conducted on 6 May 2015) “found that the [provision] was still unlikely to meet all the necessary standards when open”.78 Ofsted added that it had also been alerted to “concerns that an unregistered school was being operated” at Kids Company’s Arches II, but Kids Company closed before Ofsted organised an inspection.79 It has been reported in the media that the Department for Education raised these concerns in February 2015, six months before the charity’s closure.80

40. Ms Batmanghelidjh’s account of Ofsted’s inspection of the Bristol facilities differs considerably from the evidence that Ofsted submitted to the inquiry. The Trustees should have been aware of Ofsted’s concerns about the Bristol facilities and taken action in consequence. Either this information was withheld from the Trustees or they simply failed to act on it in the ten months between Ofsted’s two inspections. This indicates a serious breakdown of proper governance.

41.There are a number of safeguarding issues which have come to PACAC’s attention during the conduct of this inquiry into Kids Company, most of which neither a select committee, nor the Charity Commission, nor a Government department could be expected to resolve. There is therefore a strong case for statutory regulation of charities who have safeguarding responsibilities for children or vulnerable adults and we recommend that the Government considers how such regulators as Ofsted and the Care Quality Commission can assume these responsibilities as quickly as possible (see paragraph 155).

Quality of services

42.None of the Trustees had a background in youth services.81 Mr Yentob stated that Trustees were nevertheless confident in the appropriateness of the services being delivered “because there were inspections and evaluations by a large number of organisations and institutions...and there have been clinical and financial audits”.82 Mr Yentob referenced reviews by the “Tavistock and Portman Trust, the Anna Freud Centre, the Royal Society of Medicine, the London School of Economics, University of Cambridge Medical School”.83 It has been reported in the media that the University of Cambridge, the Anna Freud Centre and the Royal Society of Medicine have denied carrying out any evaluations of the charity’s work.84

43.The charity has shared a number of reports that point to its strengths. These include an evaluation by Alessandra Lemma, who undertook interviews with 8 of Kids Company’s clients, and found that they “unanimously, and very movingly, indicated that the relationship established with the key worker was felt by them to have been transformative”.85 Dr Stephen Briggs undertook a study of 29 young people, and concluded that the “multi-layered approach of Kids Company interventions appears well-suited to the needs of these young people, sustaining them with practical supports and relationship based approaches”.86 An evaluation by Dr Carolyn Gaskell in 2008 concluded that Kids Company’s model provided “exceptional results”, stating that 89% of clients with a criminal background “reported that Kid Company had effectively supported them to move away from crime”, and “of a sample of 240 young people, 81% were successful in their goal to engage with education, training or employment”.87 Additionally, an economic impact analysis suggested that, over a period of up to 10 years, the “total potential cost savings and economic benefits generated from Kids Company were…estimated to range from £8.767 million to £9.501 million”.88

44.Dr Genevieve Maitland Hudson, former Kids Company employee and now Director at consultancy company OSCA, has described Kids Company’s approach to research as “muddled”, however. She pointed out that “the bulk of Kids Company’s investment in its ‘scientific partnerships’ was concentrated on academic research in areas of interest to the charity but not directly related to delivery.” She added “it had an interest in, and funded, research that could have informed its model, but invested much less in assessing whether that model was working.” This lack of evidence about the charity’s outcomes has also been acknowledged by the Government (see paragraphs 144–146) and by reports from the Public Accounts Committee and the National Audit Office.89 Although Kids Company was required to report to the Government on interventions carried out using the Government grant, Chris Wormald, Permanent Secretary of the Department for Education, told the Public Accounts Committee that “most of [the DfE’s] monitoring was about outputs, not outcomes”.90 Richard Heaton, Permanent Secretary to the Cabinet Office, judged that “Kids Company was not good at measuring its outcomes and the impact it was having in society”.91

45.A number of former employees have submitted evidence in support of Kids Company’s methods, and have often drawn upon individual case studies to illustrate the charity’s positive impact. We received much evidence detailing the positive relationships between staff and clients, which enabled staff to take “the help to the children in a way that was receptive and had empathy towards the children”.92 Another employee stated that relationships “built between staff and clients throughout these years were powerful and built on genuine care…[and] that level of care and commitment for the young people…made Kids Company unique in its work”.93 Another wrote of a community that was “unique, it was non-judgemental, it was safe, caring, consistent and more importantly provided more than just a tick box scenario”.94

46.Many former employees believed that offering an “extended family support system for the children and their families” enabled staff to address the problems of young people in a “genuinely person-focused way…often in much more powerful ways than if staff were constrained, through rigid structures, to offering one-size-fits-all-solutions”.95 One former employee stated that she had:

never before been able to in employment focus on a client as a whole person, just aspects of their lives...Most organisations only deal with one of these aspects, and increasingly have high thresholds for acceptance.  Traumatised young people often live chaotic lifestyles, and for them to see individual organisations for all of these things, keep all the appointments and still try and hold down employment, it is incredibly difficult.96

47.Kids Company did a lot of valuable work with some very vulnerable clients, and had many extremely dedicated and committed staff. We have had many accounts that employees were inspired and motivated by the quality of support they could deliver to young people, and delivered personalised and effective interventions.97 Given this, it is both sad and disappointing that robust evaluation of the outcomes of Kids Company’s work is lacking. Without strong evidence of impact and outcomes on a wider scale than small samples or individual case studies, it is difficult to see on what basis Kids Company’s Trustees satisfied themselves of the appropriateness of support given to clients, and the value for money offered by the charity’s high resource model. That the charity invested so little in highlighting and evaluating the outcomes of its work, despite spending considerable funds on research, gives rise to suspicion in many. This approach left the Trustees unable to defend the reputation of Kids Company, which is a prime obligation of the good governance and leadership of any organisation.

Internal controls

48.PKF Littlejohn and Kids Company’s most recent auditors, Kingston Smith, were satisfied that the charity’s internal procedures were sufficient to account for the financial allowances distributed to clients. A number of employees have stated that they only had access to a small amount of cash for clients, and that “the money was not just handed out; we would make the purchase and always have receipts”.98 Ms Batmanghelidjh has stated that “decisions were not made by me alone behind a desk; it was the entire team”.99

49.However, some former employees have questioned the effectiveness of the charity’s internal controls. One claimed that “decisions about the level of funding of many clients were made solely by the CEO, with no discussion with relevant professionals,” and another warned that “inappropriate and ungoverned spending, could somehow be made opaque to outside observers and auditors”.100 It was also claimed that:

large amounts of cash were available weekly, sometimes more often, to…adults. Some were recorded as being employed at the charity; one such turned up weekly, to show his face and collect over £400. Another attended the Urban Academy, registered as a student there, but told me that attendance was weekly “’just to collect money for taxi travel and other treats”’ (despite receiving a full range of state benefits).101

Ms Batmanghelidjh does not recognise this narrative.102

50.A number of former employees have raised concerns that the practice of offering financial assistance may have risked making young people dependent on the charity, rather than seeking employment or state benefits. One stated that, since the charity closed, “clients have been left high and dry, incapable of maintaining their erstwhile lifestyle” and argued that “so many young people were kept dependent on large sums of money and never guided towards independence and now – overnight – have been thrown back into society without a clue as to how to cope”.103 A former employee from Bristol described intervening to stop the practice that “anybody who was sanctioned by the statutory benefits services, would automatically get a replacement allowance from Kids Company” as this was “not helpful to the young person, nor was it sustainable”.104

51.It has also been claimed that a lack of proper controls enabled young people to spend their allowances on drugs or alcohol. Mr Quirke-Thornton stated that the impact of closure has “largely been financial as many of the clients were in receipt of cash or goods. In some cases I note that this was connected to young people using alcohol or drugs and the associated risks of same”.105 Ms Batmanghelidjh conceded that:

There may have been occasions when a young person spent the money inappropriately but that could also be the case with respect to local authority payments or state benefits or Educational Maintenance Allowances.106

52.During their investigation into a number of allegations raised by former employees, PwC highlighted the poor controls around Ms Batmanghelidjh’s weekly cash float. PwC noted that the distribution of money was recorded on “miscellaneous pieces of paper with the value, date and the beneficiary’s name written on it… [which] does not provide reliable evidence that this sum of cash was actually received by the beneficiary.”

53.The Charity Commission expressed concerns “about the prudence of some of the spend and the legitimacy of some of the spend” that was uncovered during PwC’s investigation of the charity.107 For example, PwC noted that in 2014, one client received £13,493 in allowances, £4,704.26 for clothing, in addition to £19,788.33 for housing costs. It also uncovered other purchases of high-value items: £305 designer shoes, John Lewis “blanket/ throws costing £80 each,” “four items of men’s Outerwear costing £149, £105, £85 and £70, one item of Women’s knitwear costing £60”.

54.Former employees made a series of claims in relation to large amounts of money which were spent “in the form of goods, hotels, holidays, private medical care, stays in various sanctuaries, entertainment, clothes, electrical goods and luxury items” upon a favoured group of clients, some of whom were “in their twenties and thirties,” and were known “throughout the organisation as “Camila’s specials”.108 Another employee referred to this group as “Camila’s kids” and claimed that “inordinate amounts of money and resources were lavished on them,” including holidays to Ibiza, a spa, and a first class flight to New York.109 Ms Batmanghelidjh has confirmed that a small number of clients were sent to Champneys for therapeutic reasons, but denied being aware of clients being flown being flown first class.110

55.Many of Kids Company’s clients experienced extremely difficult, and in some cases traumatic, circumstances, and the unorthodox spending has been put into this context. However, the significant costs incurred to provide luxury items to particular individuals diverted charitable funds from other projects and programmes that had the potential to provide more long-term and effective support to a wider group of young people. Such lavish spending was inappropriate, unwise and irresponsible, and did not represent a proper use of charitable funds. Given the charity’s known cash flow problems, including its difficulties in meeting its payroll and obligations to HMRC, the authorisation of such payments was in defiance of the reality of Kids Company’s financial position and duties to clients. With a complete lack of experience of youth services amongst Trustees, it was impossible for the Board to assess the appropriateness of significant expenditure that Ms Batmanghelidjh justified on the basis of clinical judgements. It is nevertheless extraordinary that Trustees were content to accept this without more rigorous examination.


56.Mr Quirke-Thornton said that “operating models in children’s services purposefully seek to achieve a safe distance between vulnerable children and young people and adults” but warned that “boundaries appeared to have become blurred” at Kids Company, as former clients became volunteers or staff at the charity.111 A former employee also reported “inappropriate relationships between key workers and clients” due to “untrained key workers [having] no idea about boundaries”.112 Kids Company has said that only a “relatively small group” of the charity’s keyworkers were hired from the community, all of whom were in the process of completing relevant qualifications and had undertaken child protection training. The former employee stated, however, that former clients were employed in other capacities at the charity.113

57.It has been also been alleged that a blind eye was turned to serious violence, drug taking and sexual abuse.114 A former employee referred to two very serious incidents of unprofessional clinical and safeguarding practice in the past 3 years. Another alleged serious mismanagement of their attempts to raise concerns after witnessing a psychologist employed at the charity take and then share Class A drugs with a client. This second former employee, who wished to be treated as a whistle-blower, alleged that they were initially advised not to share their account with the charity’s management. The employee subsequently took the allegation to Ms Batmangehlidjh but Ms Batmanghelidjh allegedly instructed the employee to confront the psychologist themselves. An ensuing investigation was conducted by someone who had previously undertaken positive evaluations of the charity, and who the employee did not consider to be objective. The subsequent report allegedly contained information about the employee’s personal circumstances that had not been shared by the employee during the interview and were used to judge the employee to be an “unreliable informant.” Both employees were suspended during this investigation, but were subsequently permitted to return to work. After the employee complained to Ms Batmanghelidjh and the Human Resources department that the allegation had not been handled in line with whistleblowing procedures, the psychologist in question was re-suspended.115 A Health and Care Professional Council (HCPC) panel, to whom the allegation was ultimately referred, judged that the psychologist had let vulnerable people stay overnight in their flat, tested positive for cocaine whilst at work, taken MDMA (a Class A drug which is the active ingredient in ecstasy) in the presence of two clients, and offered the drug to the clients. The psychologist has been suspended for 18 months. The HCPC will agree the final sanction on 10 February 2015.

58.The Police and Children’s services are currently undertaking 36 investigations relating to Kids Company. Investigations by the appropriate authorities are ongoing and no charges have been brought at the time of publication, but a House of Commons select committee is not in a position to draw any conclusions from this material while a police investigation is in process.

59.Kids Company’s handling of an allegation about a very serious failure of safeguarding was inadequate and irresponsible. It is not appropriate for a known supporter of Kids Company to conduct a supposedly independent investigation, and that confidential information about an employee’s personal circumstances were used to assess their credibility, without transparency about where the information had come from, or permission being given for it to be shared. This represents a serious failure on the part of Trustees to ensure the existence and observance of appropriate processes for handling allegations relating to the safeguarding of vulnerable young people.

Board of Trustees

60.Ms Batmanghelidjh founded Kids Company, and led the organisation as its Chief Executive for 19 years. She has been described as an “emblematic figure” who possessed extraordinary fundraising capabilities.116 Former employees praised Ms Batmanghelidjh for being the “heart of our team,” leading the charity “superbly” and working “a 6 day week minimum, typically working 10 hours plus each day”.117

61.Kids Company celebrated its “flat management structure”, which it claimed allowed employees to raise their opinions and concerns with relevant managers.118 However, a number of former employees have reported that Ms Batmanghelidjh directed them not to share their concerns about the charity with Trustees or senior members of the organisation. One employee stated that, when she raised concerns about the charity’s finances, Ms Batmanghelidjh “would brush over them and tell me all was well. She was not impressed that I would have discussions with our interim finance director or HR director and monitored the interactions I had with them”.119 Ms Berelowitz stated that, having visited the charity, she came away with the impression that Ms Batmanghelidjh was “very much in control of what went on. The ethos, the way in which things were run, the general comportment of the organisation”.120

62.It is, however, a charity’s Board of Trustees that bears full legal responsibility for maintaining proper standards of governance within the organisation.121 So-called “founder syndrome” is, as the charity’s auditors acknowledged, “not unusual in charities” but the Charity Commission directs Trustees to “make decisions solely in the charity’s interests, so they shouldn’t allow their judgement to be swayed by personal prejudices or dominant personalities”.122

63.A number of former directors claim to have alerted Trustees to concerns about mismanagement, sustainability and inappropriate spending (which included the decisions and conduct of Ms Batmanghelidjh), but Trustees failed to act on this information and the directors ultimately resigned.123 Mr Yentob denied that he was presented with “allegations” and stated that the “clear whistleblowing process…was not taken” and that only one complaint (relating to the appointment of an unsuitable applicant) came directly to him.124 This conflicts with accounts from former employees, who documented several occasions on which concerns were raised with the Trustees and the Chief Executive but no action was taken.

64.Mr Yentob reported that, in general, the Trustees were content that Ms Batmanghelidjh “was continuing to raise the funds and to run the place well”.125 However, he noted that over the past two years “the stress and pressure on her was too much,” but it had seemed “very difficult at that time to change the structure because there was also a level of trust between people”.126

65.PACAC has had sight of correspondence documenting Ms Batmanghelidjh’s rejection of significant financial assistance in November 2014. The minutes of Trustee meetings reveal that, at this point, the charity was in £4 million deficit, with £55,000 of self-employed invoices outstanding, and was preparing to approach the Government to request a £12 million grant. The donor offered “unlimited” funding and “a large human resource” towards a number of the charity’s projects, and to develop the charity’s infrastructure with a view to increasing its revenue streams and disseminating its research. Ms Batmanghelidjh instead requested that the philanthropist provide a cash donation of £1 million within a week to aid the charity’s immediate funding crisis. The meeting took place on Wednesday, and the donor requested “a day or so” to consider the request, due to the deviation from the usual process for cash donations and an all-day flight on the Friday. On the Saturday, Ms Batmanghelidjh contacted the donor to reject his offer of assistance. She said that the potential donor lacked “emotional authenticity”, was not “in a space where [s/he] can authentically think about what somebody else needs” and was “not ready to be genuinely philanthropic.” She stated that her “intuition” told her not to enter into the partnership, as it lacked “moral and emotional foundations”, and that “mobilising people’s kindness” was more important than “any grand promise of organisational potency.”

66.There is no evidence that Trustees were involved in the decision to turn down the philanthropist’s offer of significant financial and human resource. At the time the offer was made and rejected, Trustees were attempting to manage a £4 million deficit and secure an additional £12 million grant from the Government. Ms Batmanghelidjh’s citing of mere intuition about an individual’s supposed lack of emotional authenticity as justification for blocking the exploration of a new partnership at a time of extreme financial difficulty underlines how unaccountable and dominant Trustees had allowed her to become, and how far she was able to insist on maintaining personal control.

67.Mr Yentob was Chair of Trustees for 12 years. His actions in the weeks surrounding the charity’s collapse have received significant media attention, with allegations that he displayed a conflict of interest in his role at the BBC. Mr Yentob admitted that he stood behind the glass with the producer during a BBC interview with Ms Batmanghelidjh about the charity’s difficulties, and also made a phone call to another BBC journalist who was due to make a broadcast about the charity.127 Mr Yentob said that he was “emotionally upset and engaged” by the coverage, and regrets this action “if it was intimidating”.128 He has since resigned from his position as Creative Director at the BBC. Lord Hall of Birkenhead, BBC director general, said that Mr Yentob’s conduct was “improper” but had not affected BBC coverage of Kids Company.129

68.A charity of Kids Company’s size and complexity requires a Board of Trustees that will demonstrate leadership, judgement and a willingness to challenge assumptions. There was a lack of relevant Trustee expertise in the field of youth services or psychotherapy, although we understand that attempts, albeit belated, were underway to recruit a Trustee with such experience in the run up to the charity’s collapse. The admiration that Kids Company’s Trustees had for Ms Batmanghelidjh’s apparent vision and fundraising capabilities led to a false confidence about other areas of the organisation. The Charity Commission’s guidance to Trustees warns that Trustees should not allow their judgement to be swayed by personal prejudices or dominant personalities, but this is what occurred in Kids Company. This resulted in Trustees suspending their usual critical faculties – particularly over Ms Batmanghelidjh’s insistence on the demand-led business model, her exercise of substantial discretionary spending powers, the effectiveness of internal controls, and the quality of clinical judgements and safeguarding procedures. The length of the Chief Executive and Chair’s tenures were not conducive to challenging the Chief Executive herself. There was a clear link between the failure to correct serious weaknesses in the organisation, and the failure to refresh its leadership.

69.Mr Yentob denied historic failures in financial management and insisted that there were no questions about the financial resilience of Kids Company until 2014. Given the charity’s historic hand-to-mouth existence, its continual failure to build up reserves, significant periods on the brink of insolvency and its inability to meet its obligations to HMRC, this is an inaccurate and alarming interpretation. The evidence Mr Yentob gave to the Committee suggests a lack of proper attention to his duties as Chair of Trustees and a continuing inability to recognise those failures. With his fellow Trustees he was unwilling or unable to impose sufficient control. Together, they failed to exercise their proper function as Trustees.

70.Mr Yentob acknowledges his poor judgement in respect of his position at the BBC during the summer of 2015. His actions were unwise at best, and deliberately intimidating at worst. He has since resigned his main position at the BBC but he still retains substantial responsibilities within the organisation and oversees substantial budgets. It is not within the remit of this Committee to comment on the governance of the BBC, but the proper governance of conflicts of interest and standards of behaviour – particularly amongst its senior executives – is a very serious matter for any reputable organisation. That a senior figure could act in this way and it could take so long for action to be taken reflects poorly on the BBC’s leadership.

17 “Kids Company helps with the whole problem” (Gaskell, 2008). Dr Carolyn Gaskell praised the self-referral model because “those asking for help are more likely to be receptive to what is on offer. Importantly such an approach is respectful of the sense of agency and responsibility of the individual child or young person.”

19 KCI47 (Camila Batmanghelidjh) and Q189, Oral Evidence 15.10.2015

21Investigation: The Government’s funding of Kids Company,” (NAO report)

22 Qq2, 172 and 175, Oral Evidence 15.10.2015. As was also noted in the NAO’s report, Investigation: the Government’s funding of Kids Company, Ms Batmanghelidjh’s letters to Ministers often argued that Kids Company was working with a large number of statutory cases and should be funded accordingly.

23 KCI47 (Camila Batmanghelidjh)

24 Kids Company Annual Reports

25 Q129 [Alan Yentob, Chair of Trustees at Kids Company], oral evidence 15.10.2015

26 KCI47 (Camila Batmanghelidjh)

27 KCI49 (Alan Yentob)

28 Q112 [Camila Batmanghelidjh), Q125 (Alan Yentob) oral evidence 15.10.2015

29 Qq479, 480–481, [Nick Brooks, Partner at Kingston Smith] oral evidence 17.11.2015

30 Keeping Kids Company accounts 2003–2015. The accounts for 2010–2013 are available on the Charity Commission’s website.

32 Q125, oral evidence 15.10.2015. As outlined by the Charity Commission, restricted funds are funds subject to specific trusts, which may be declared by the donor(s) or with their authority (eg in a public appeal) or created through legal process, but still within the wider objects of the charity. Unrestricted income funds are income or income funds which can be spent at the discretion of the trustees in furtherance of any of the charity’s objects.

38 Investigation: The Government’s funding of Kids Company (NAO, 2015)

39 Kids Company also requested an early grant payment in December 2014 to help it manage its cash flow (Investigation: The Government’s funding of Kids Company, NAO, 2015)

40 Time To Pay (TTP) arrangements allow customers who cannot settle their tax payments to HMRC on the due date to make payments over a period they can afford.

41 Investigation: The government’s funding of Kids Company (NAO, 2015)

45 KCI44 (David Quirke-Thornton)

47 KCI08 (A1)

48 KCI44 (David Quirke-Thornton)

49 KCI08 (A1) and KCI06 (Laurence Guinness)

52 KCI44 (David Quirke-Thornton)

53 PACAC has seen correspondence between Kids Company and Official Receiver, verifying the existence of 87 boxes in storage.

55 KCI44 (David Quirke-Thornton)

56 KCI44 (David Quirke-Thornton). Kids Company has also submitted this list to the Committee: KCI06 (Laurence Guinness)

57 KCI06 (Laurence Guinness)

58 Q67, [Alan Yentob], Q2 [Camila Batmanghelidjh] oral evidence 15.10.2015

59 KCI44 (David Quirke-Thornton)

60 KCI31 (Dr Genevieve Maitland Hudson)

61 KCI31 (Dr Genevieve Maitland Hudson)

62 KCI48 (Camila Batmanghelidjh)

63 KCI49 (Alan Yentob)

64 Methods was not required to assess the quality of services provided or conclusions drawn from the data.

65 Q545, oral evidence, 17.11.2015

66 Q552, oral evidence, 19.11.2015

67 KCI33 (Joan Woolard)

68 Q634, oral evidence 19.11.2015. We return to the Government’s understanding of Kids Company’s reported figures in Chapter 5 of this report.

69 KCI44 (David Quirke-Thornton)

70 Q536, oral evidence, 17.11.2015

71 KCI47 (Alan Yentob and Camila Batmanghelidjh)

72 KCI48 (Camila Batmanghelidjh)

74 KCI47 (Camila Batmanghelidjh and Alan Yentob)

75 KCI37 (Ofsted)

76 Q45, oral evidence 15.10.2015

77 KCI47 (Camila Batmanghelidjh and Alan Yentob)

78 KCI37 (Ofsted)

79 KCI37 (Ofsted)

81 We understand from conversations with those connected with the charity that attempts were underway, however, to recruit a Trustee with an appropriate clinical background to the Board of Trustees. The Trustee had not been recruited, however, by the time of the charity’s closure in August 2015.

84 ‘Kids Company academic research wrongly portrayed’ say scholars (Times Higher Education, 17.12.2015)

85 Alessandra Lemma (2010): The Power of Relationship: A study of key working as an intervention with traumatised young people, Journal of Social Work Practice: Psychotherapeutic Approaches in Health, Welfare and the Community, 24:4, 409–427, p.420. The report also noted : “of course, what people report as helpful is not necessarily what is helpful. To establish the respective impact of the various different types of interventions offered to the young people within this particular project would require a complex quantitative research paradigm. But, at the very least, the voices of the young people …encourage us to take seriously the multiple benefits of the kind of service offered by Kids Company, and of the evidently important difference that staff without any formal qualification in mental health are able to make to the lives of some of our most troubled young people” (p.425)

86 QUALITATIVE EVALUATION OF KIDS COMPANY’S ‘LEGIT LIVING’ PROGRAMME (Briggs, 2013). Dr Maitland Hudson has warned that “the very small sample size, however, should discourage any further generalisation from this study.” (KCI31)

87 “Kids Company helps with the whole problem” (Gaskell, 2008)

88 KIDS COMPANY IMPACT ANALYSIS Economic Impact Analysis for Kids Company’s DfE Grant Response (Buescher, Ferdinand, Trachtenberg, Evans-Lacko, Knapp, 2014)

89 Investigation: The Government’s funding of Kids Company, (NAO, 2015), HC [2015–16] 504

92 KCI17 (A6)

93 KCI20 (A9)

94 KCI14 (A3)

95 KCI16 (A5) and KCI15 (A4). Similar views amongst staff were also noted in by Lemma, A (2010) in The Power of Relationship: A study of key working as an intervention with traumatised young people, Journal of Social Work Practice: Psychotherapeutic Approaches in Health, Welfare and the Community, 24:4, 409–427: “All the staff conveyed their belief that by ‘being there’ for the young person through the good and the tough times they were providing a qualitatively different experience and that this, in itself, helped to challenge implicit assumptions about self and others.”(p.418)

96 KCI13 (A2)

97 The Committee has received a number of reports which indicate the high level of need of many of Kids Company’s clients. These include: ‘Enough is Enough: A report on child protection and mental health services for children and young people’ (Eastman, 2014), Children and Parents’ Experiences of Food Insecurity in a South London Population (Harvey, 2014); “Need analysis on a sample of high-risk clients” (Hillman and Wainwright, 2012); KIDS COMPANY A DIAGNOSIS OF THE ORGANISATION AND ITS INTERVENTIONS (Jovchelovitch and Concha, 2013). Mr Yentob submitted a letter from a group of lawyers. This stated that “over many years, Kids Company has brought hundreds of extremely vulnerable children to our offices and the courts to fight for their basic rights.”

98 KCI14 (A3)

100 KCI26 (A12)

101 KCI26 (A12)

103 KCI19 (A8)

104 KCI45 (Esther Pickup-Keller)

105 KCI44 (David Quirke-Thornton)

106 KCI47 (Camila Batmanghelidjh)

107 Q487 [Michelle Russell, Director of Investigations, Monitoring and Enforcement] oral evidence, 03.11.2015

108 KCI26 (A12)

109 KCI19 (A8)

110 ‘Camila Batmanghelidjh calls for new inquiry into Kids Company’s demise’ (12.11.2015, Buzzfeed)

111 KCI44 (David Quirke-Thornton)

112 KCI19 (A8)

113 “In many instances, clients began “working” for KC – being paid cash to empty bins, move goods in and out of the Warehouse, go out in the van collecting donations…They would be paid £50 a day (often whether they attended or not) plus cash for a travel card …These young men continued to be employed even when the Warehouse closed down (in January 2015).” KCI19 (A8)

115 KCI50 (A18)

117 KCI28 (A14), KCI32 (Johanna Morrell), KCI34 (David van Eegen)

119 KCI45 (Esther Pickup-Keller)

121 A list of Kids Company’s trustees at the time of its collapse is included in Annex A of this report.

123 The resignation of the directors was reported in the media at the time (‘Stars’ children’s charity in crisis after three directors quit over the way it is funded’, 09.03.2015 (Daily Mail). PACAC has also verified these accounts.

129 Alan Yentob criticised by BBC director general over behaviour in Kids Company coverage’ (Guardian, 16.12.2015)

© Parliamentary copyright 2015

Prepared 28 January 2016