5Kids Company’s relationship with Whitehall
124.Throughout Kids Company’s existence, Ms Batmanghelidjh cultivated her contacts with senior politicians. She appeared on platforms with them on several occasions, such as with Rt Hon David Cameron MP at the Conservative party conference in 2006. Kids Company enjoyed unique, privileged and significant access to senior Ministers and Prime Ministers of successive Governments. Part of our inquiry has focused upon the relationship between Kids Company and the Government since 2010 but the patterns of behaviour pre-date this and some of our comments are equally applicable to previous administrations that dealt with the charity.194 This final Chapter builds on the detailed examinations of the history of Government funding to Kids Company conducted by the National Audit Office and the Public Accounts Committee, and focuses specifically on the final grants paid to the charity by central Government during 2015.195
125.Since 2002, central Government has provided at least £42 million in grants to Kids Company.196 Between 2002 and 2005, the Department for Culture, Media and Sport, the Home Office and HM Treasury were involved in funding decisions, but the majority of central Government funding (over £22 million) came from the Department for Education (DfE) in the form of multi-year grants between 2008 and 2013. 197 In 2013, youth policy, including responsibility for administering associated grants, transferred to the Cabinet Office. The DfE, Department for Work and Pensions, Department for Communities and Local Government, the Department for Health and the Cabinet Office contributed to a number of cross-departmental grants to the charity between 2013 and 2015. A number of cross-departmental grants to the charity between 2013 and 2015 were contributed to by the DfE, the Department for Work and Pensions, Department for Communities and Local Government and the Department for Health, as well as by Cabinet Office.
Correspondence with the Government
126.The NAO outlined the “consistent pattern of behaviour each time Kids Company approached the end of a grant term”: if officials resisted new funding commitments, Kids Company would warn Ministers and media outlets of the impact of service closures, and Ministers would ask officials to review their decisions.198 Tim Loughton, Parliamentary Under-Secretary for Children and Families in the Department for Education 2010–2012, described the approach as “Danegeld…[Ms Batmanghelidjh] was constantly coming back for “money or else,” and said that correspondence contained “veiled threats,” which “certain people took seriously”.199 Ms Berelowitz criticised the practice of providing funds “on the basis that people are using emotive and emotional language about their client group…or saying that the Government will face a very hard time from the media should they not cough up”.200 Mr Letwin also recognised this approach and described it as a “conscious strategy” on the part of Kids Company to secure funding.201 While Mr Letwin acknowledged that the Government’s response to such requests was not “the right way for the Government to relate to any outside body,” he also stated that he knew that Kids Company’s warnings of “some massive explosion” were incorrect and denied that such claims influenced his decision-making in awarding grants to the charity.202
127.In defending the charity’s hand to mouth existence, Ms Batmanghelidjh and Mr Yentob claimed that repeated correspondence with Ministers throughout the charity’s existence suggested that regular statutory funding would be forthcoming (see paragraph 13). We found no evidence of that reassurance in correspondence between Kids Company and Ministers in the DfE, Cabinet Office and No. 10, including the Prime Minister. The Prime Minister praised the charity and expressed a wish to help Kids Company become sustainable, but also warned that future funding from central Government could not be guaranteed.203
Relationship with No. 10
128.Kids Company’s relationship with No. 10 under successive governments, and the extent to which No. 10’s intervention helped Kids Company to secure funding, has been the subject of much media speculation and interest.204 Mr Loughton stated that “people like Steven Hilton at No. 10 were always copied in” to letters from Ms Batmanghelidjh and various submissions, and that the No. 10 Policy Unit was “holding meetings with Kids Company representatives and other local authorities to which I and officials from the DfE, as far as I am aware, were not privy”.205 Mr Letwin has confirmed that No. 10 officials and special advisors were involved in discussions to secure the cross-departmental 2013–2015 Government grant.206
129.While we found no evidence of direct instruction from No 10, the correspondence makes clear that the climate was one of favour towards Kids Company. Mr Loughton noted that Ms Batmanghelidjh was “was almost the poster girl at the Big Society summit that the Prime Minister held in May 2010 within weeks of the election”.207In letters to Camila Batmanghelidjh in 2011, 2013 and 2014, the Prime Minister expressed his personal support for the charity and stated that he would attempt to follow decisions made regarding their funding, having suggested meetings with relevant ministers in the DfE and Cabinet Office. Mr Letwin said that he was “well aware, as the whole world is, of [the Prime Minister’s] support for Kids Company” and “certainly discussed” Kids Company with the Prime Minister.208 However, he maintained that the funding he authorised in 2015 was “my responsibility. Nobody told me to do it and that is the end of the matter”.209
130.Mr Loughton, however, suggested that knowledge of the Prime Minister’s support may have influenced earlier decisions made in the DfE. He stated that while officials may be “trying to do a dispassionate job and produce evidence for Ministers to make decisions”, there was also:
quite a lot of noise going on outside the Department about why certain charities – in this case Kids Company—are something of a special case and there are implications…well beyond the Department if it were to fail.210
131.In his testimony Mr Loughton reported feeling that the high-profile support for Kids Company meant that “clearly the pressure is on that this is a charity that needs to be looked at a bit more favourably” and called his decision to approve the awarding of a £8.9 million grant in 2011 a “fait accompli”. 211
132.Mr Chris Wormald, the Permanent Secretary of the DfE and Mr Richard Heaton, the then-Permanent Secretary of the Cabinet Office, told the Public Accounts Committee (PAC) that they did not feel under political pressure to approve funding to Kids Company.212 PAC rejected this assertion as “barely plausible”.213.
133.Indeed, the high level of access and favour shown by successive Governments to Kids Company created a potentially difficult atmosphere for any criticism of the charity. Sue Berelowitz, former deputy Children’s Commissioner for England, stated that the knowledge of Kids Company’s high-level support gave her “great pause for thought” when considering how best to act on her concerns about the charity. She stated that:
it would have been very challenging to have gone to No. 10 and said, “I am concerned” because to take a stand against somebody who was constantly telling you about celebrities or relationships with people in the very highest places is quite intimidating…it would be difficult to make those kinds of representations. Quite frankly, I do not think my voice would have been a good counterweight.214
134.She warned that there needed to be “a degree of objectivity” between the Government and the leaders of charities, so that “everybody can see that due process has been followed and indeed that others aren’t swayed from talking about any concerns they may have because of the appearance at the very least of a very, very close relationship”.215
135.In 2013, responsibility for youth policy, including the allocation of associated grants, was transferred from the Department for Education to the Cabinet Office. Tim Loughton expressed doubts that Kids Company had “any great bearing” on the decision to transfer the DfE’s responsibilities for youth funding to the Cabinet Office.216 Instead, he attributed the transfer to a “hostility to youth services and youth organisations generally” and the fact that “the Secretary of State was not a big fan of having youth services within his department”.217 A number of other areas for which Mr Loughton had been the responsible Minister “have now been dissipated to at least half a dozen other Government Departments”.218 Mr Letwin agreed that it could not “really be the case” that the transfer of youth policy was due to doubts expressed about Kids Company within the Department for Education, because the “DfE remained an important funder through 2013–14, 2014–15 and 2015–16”.219 He has since clarified that this transfer occurred because “the National Citizen Service (NCS) was already managed out of the Cabinet Office and it was felt that it made sense for the two teams to join”, and “the focus of the Department for Education Secretary of State had become more towards education rather than Youth Policy”.220
136.The privileged access to Ministers, numerous ‘special grants’ and exemption from usual reporting processes appear to have distorted the expectations of the charity’s leadership and undermined the warnings issued by Government that funding might not continue. In allowing an unconventional relationship and funding process to develop, successive governments left themselves vulnerable to misunderstandings – wilful or otherwise – on the part of the charity, about the level of support that Kids Company could expect to receive from Government in the future.
137.Ms Batmanghelidjh and Kids Company appeared to captivate some of the most senior political figures in the land, by the force of the Chief Executive’s personality as much as by the spin and profile she generated for the charity. As a consequence, objective judgements about Kids Company were set aside. The Government’s relationship with Kids Company was forged outside the usual decision-making processes of Whitehall departments and there is little doubt that the high profile support of successive Prime Ministers for Kids Company had an impact upon decision-making across Whitehall. This included the authorisation of multiple grants outside of the normal competitive process. We also question whether it was wise to move youth funding from the Department for Education into the Cabinet Office. Had that not occurred, it is possible that less money would have gone to Kids Company and more to other, perhaps better run, youth charities. Other charities have said that they are angry and cynical about how one or two charities gain unfair advantage, and that the approach of successive Governments towards Kids Company has damaged their confidence in Government.
138.It is also a matter of considerable concern that the knowledge of the high-level political patronage enjoyed by Kids Company may have deterred other individuals from coming forward with concerns about the charity.
139.We concur with the Public Accounts Committee’s recommendation that, at the very least, if the Government decides to use special powers to grant funding, it should provide a transparent case for its decision and report regularly on the use of these powers. Ministers and Government departments must deploy proven methods of assessment and co-ordinate these effectively, and exercise objective judgement when deciding whether to grant taxpayers’ money to charities.
140.When allocating funding to charities, Ministers should not risk creating the perception that they are overriding official advice on the basis of personal prejudice or political considerations. In circumstances where they disagree with official advice regarding the release of grants to a particular charity, Ministers, including Prime Ministers, should consider whether such disagreement arises from a conflict of interest. If a conflict could be judged to exist, the Minister or Ministers must recuse themselves from decision-making, including from any influence over any other Ministers making those decisions. Ministers should not allow charity representatives to exploit their access to Government in a way that may be unethical. There must be no suggestion that individual Ministers have funds under their personal control or are exercising personal patronage.
141.It should be for the relevant departments to control grants to charities, not the Cabinet Office or another department that does not have direct policy responsibility for the sector in question. As the Cabinet Office is the department most closely under the Prime Minister’s control, the existing structure leaves the Prime Minister exposed to the kind of pressures which Kids Company thought it could exert.
142.Government should re-evaluate the standard process by which grant decisions benefiting charities can be made following input from a number of different departments. This review should consider the creation of an account manager to oversee all funding decisions for each charity. This would enable greater continuity and accountability than seen in the case of Kids Company, which was passed between several departments throughout its existence.
143.The Government should consider whether sufficient safeguards are in place to ensure that the Libor Fund is administered in line with these principles of objectivity and transparency.
Government monitoring
144.Kids Company has not had to compete for a grant since 2013.221 Despite extensive Ministerial support, the Government had little evidence on which to base judgements about the value of Kids Company’s work; the Government had been heavily reliant on Kids Company’s self-assessments, and monitoring of grants had historically focused more upon outputs than outcomes.222 Mr Loughton told the Committee that Kids Company “appeared to have a lower threshold of proof in order to get money from public funds” than other charities, and Ms Berelowitz expressed surprise that the funding bodies, particularly the Government, “were not requiring much more detailed audits and satisfying themselves that the money was spent for the purposes for which it was intended,” given the large grants awarded to Kids Company. 223
145.Mr Loughton stated that he was “sure [Kids Company] did some good work for some people, but whether it justified the amount of money, we never had the evidence to back that up”.224 Mr Letwin acknowledged the Government’s failure to measure the charity’s outcomes, but hoped that the conditions attached to the April 2015 grant would enable the Government to find out “a year or two later whether [Kids Company] was actually doing the good work that I believe, underneath all these problems, it was doing”.225
146.Without robust evidence, the Government had no way of knowing whether Kids Company was delivering more effective or better value interventions than any other charity, despite the fact that it received considerably more funding than other charities - including those operating nationally - in each funding round.226 Mr Loughton said that “there were very serious concerns about how effective that money was compared with that for other groups,” despite Kids Company receiving “by far the lion’s share” of funding between 2011 and 2014.227 He stated that:
there were other youth organisations doing some very good work with some equally traumatised and damaged children and young people that were producing all sorts of performance indicators, and more importantly actually producing the children to be able to tell us their story as well.228
147.Dr Maitland Hudson also believed that “one of the greatest difficulties in assessing Kids Company’s value for money has been the absence of shared indicators that would allow for a reasonable comparison of its work with that of other providers”.229
148.Mr Letwin, who has been a vocal supporter of the charity since 2002, stated that he “never believed the numbers” Kids Company claimed to be working with, and said that “there was a distinct gap between the claims for the numbers that were going on in public and what was really happening”.230 Rather than the 19,000 children the charity claimed to be working with in schools, Mr Letwin believed that Kids Company was instead “covering about 10,000 children” in schools, but acknowledged that “covering” children is “very different from looking after individual children”.231 He believes that Ms Batmanghelidjh “conflated a whole series of different figures in order to get the biggest possible figure and to give an impression that went beyond what it looks like when you look at the detail”.232 Despite these concerns, however, Mr Letwin stated that his “personal and direct experience of talking to the kids involved and seeing what was going on” in 2001–2003 reassured him that the charity was doing valuable work. 233 This was more than 12 years ago.
149.It is astounding that it was only in 2015, by which point Kids Company had received over £35 million from central Government, that the Government acknowledged the need for a robust examination of the charity’s activities and outcomes. Given that doubts were reportedly raised about Kids Company in the DfE, we also question the quality of co-ordination between Government departments, following the transfer of youth policy.
150. Evidence that former employees have submitted to this inquiry has highlighted the charity’s dependency on selective case studies to evidence its impact. While case-studies may have a role to play in illustrating a charity’s work, wider evidence of impact is required. This is particularly true for charities in receipt of large amounts of Government money. We struggle to see on what basis successive Governments and other grant-giving bodies, and indeed the charity’s Trustees, satisfied themselves of the appropriateness of support given to clients, and the value of the charity’s high resource model.
151.It is unacceptable that successive Ministers appear to have released funds on the basis of little more than their relationship with a charismatic leader, small-scale studies and anecdotes, and no more than two visits made by Mr Letwin more than 10 years previously. Releasing Kids Company from the usual competitive grant processes to which other charities are subject, despite a lack of evidence about the efficacy of its model or any evaluation of outcomes, has been proved to be an unjustifiable way to conduct Government business and to handle public money. This approach is condemned by the fact of Kids Company’s failure and is therefore unjustifiable in the future.
152.Government doubted that the information that Kids Company was circulating regarding its client number was true, but did nothing to correct the record. Instead, it continued to grant funding despite that knowledge.
153.We agree with the Public Accounts Committee’s (PAC’s) recommendation that the Government should undertake a fundamental review of how it makes direct and non-competitive grants to the voluntary sector.234 In addition to the areas the PAC recommends for consideration, we see the creation of a measurement framework for the social sector as essential to this. The use of standardised measurement tools will enable more accurate assessments of the value of activity, and enable meaningful comparisons to take place during grant bidding and monitoring. Identifying a charity’s outcomes, rather than simply its outputs, and benchmarking these in relation to other organisations in the sector should be a core part of any funding decision.
154.We also agree with the recommendations made by the PAC that the Government should improve the way it monitors and evaluates the performance of grant-funded organisations.235
155.If the Government is funding an organisation that provides services such as therapy or education, it must satisfy itself that these services are being delivered by people who are sufficiently qualified to be doing so. For example, a number of local authorities, amongst them Southwark Council, no longer commission Alternative Provision Education from providers that are not registered with Ofsted. Central Government should similarly consider making external inspection from the relevant regulatory body (e.g. CQC or Ofsted) a condition of commissioning, so that it can be sure of the quality of services being delivered.
156.The Government should insist that charities to which it provides grants provide legally defensible contingency plans. This would help to mitigate the risks of a charity with vulnerable beneficiaries folding unexpectedly.236
Government’s use of professional services
157.Kingston Smith, PKF Littlejohn and PwC representatives all denied that their reviews of the charity indicate that Kids Company was well run. Nevertheless, these reviews have all been cited by the Cabinet Office as providing a degree of assurance about the effectiveness of the charity’s governance or operations.
158.Information about the charity was reported in a piecemeal fashion across various reviews that actually offered little or no assurance about the effectiveness of Kids Company’s governance. They were read selectively to gain confirmation of a pre-existing and positive picture of the charity. Government must learn lessons about its use of such reviews, and co-ordinate its activities.
PKF Littlejohn
159.As outlined in paragraph 87, PKF Littlejohn explicitly stated that “an assessment of the effectiveness of [governance] policies and procedures was outside the scope of our review”.237 However Mr Letwin indicated that the Cabinet Office did in fact take assurances about the effectiveness of the charity’s governance from this report. He said he was “relying on” the PKF Littlejohn review to highlight problems in the governance of the charity as “what I had before me was the report that is called a review of ‘financial and governance controls,’ so I read it that way.” He stated that the review indicated that Kids Company’s governance and controls were “reasonably okay within the limits of a charity” and did not reveal “that actually the charity was grossly financially mismanaged”.238
160.The scope of the PFK Littlejohn review became limited to the point where the final report to the Cabinet Office provided none of the information needed to assess the governance of the charity. It is of particular concern that, when making funding decisions, a Minister took assurances from the report that the report did not offer.
161.The Government should, as a matter of urgency, examine the process by which it commissions reviews to ensure that it receives the information it requires. It is essential to ensure that the commissioning process does not allow drift from the original scope. Consideration should be given to requiring successful contractors to outline explicitly what level of assurance on specific issues the Government will be able to take from their final report.
162.The Government was right to attempt to assess the governance of a charity before awarding funds. However, rather than commissioning a review of a charity’s policies and processes from one of the usual outside firms, the Government should develop its own Civil Service capability in order to exercise its own judgement about whether a charity’s governance, quality of decision-making, objective setting and culture are effective, and if its internal controls are sufficient. There should be particular caution towards Boards in which Trustees have held their position for more than two terms, and towards Boards where no individuals have experience in the charity’s particular area of delivery.
Kingston Smith
163.Mr Brooks judged that Kids Company had “always been living on a knife edge, which is in my view portrayed quite clearly through the notes to the accounts”.239 Mr Letwin, however, stated he “didn’t get from the audit reports…that actually the charity was grossly financially mismanaged” when he examined the accounts in April.240 He acknowledged that the Government would “need to look at the whole question of how audit reports and other reports are used by public agencies”.241
164.This inquiry should provide a reminder to all whose use charity accounts that a clear audit report gives no indication that the charity is well-managed or any assurance that charitable funds are being used wisely and in accordance with the stated purposes of the charity. Charity Trustees also have an obligation to be accountable to their donors.
165.The Government must not rely upon audited accounts being signed off as a going concern as any assurance that a charity is financially well-managed or well-governed. At the very least, Government must request sight of a charity’s management letters, and should seek direct assurance from the charity’s auditors.
166.When commissioning external audits or reviews, Government should give priority to contractors with specific experience of the relevant field (e.g. of children’s services) so that meaningful benchmarking can take place.
PwC
167.Cabinet Office’s written evidence confirms that it was “waiting for the preliminary findings from some allegations made by ex-employees of Kids Company which the Charity Commission were looking into” before authorising a £4.265 million grant on 28 July.242 Oliver Letwin clarified that the funding was not contingent upon PwC’s findings, but on whether the Charity Commission would be opening a statutory inquiry on the basis of the preliminary report; it would not be possible to authorise payment to a body under statutory inquiry.243
168.The Charity Commission decided not to open a statutory inquiry on the basis of the preliminary findings, but did advise the Cabinet Office that the report “was not a clean bill of health and we still had concerns about the prudence…and the legitimacy of some of the spend”.244 Nevertheless, Mr Letwin stated that “the fact that PwC had brought to light yet more examples of financial mismanagement was…not decisive for my decision” to release the grant as he was already aware that “the charity was being grossly financially mismanaged” and had plans to replace the charity’s management.245
169.We are concerned that the Cabinet Office was prepared to hand over money, on a Minister’s say so against official advice, to an organisation in which serious allegations had not been fully investigated. We are not convinced by Mr Letwin’s assertion that the planned changes to the charity’s leadership rendered the allegations under investigation irrelevant. It was an error for the Government to release a second “final” grant to a charity with a history of financial mismanagement, and in which the new Trustees and, as yet unidentified, permanent CEO had not yet proved their competence or commitment to making serious changes to the organisation’s ethos and practices. We recommend that in future no department should hand over money to an organisation in which serious allegations have not been fully investigated.
April 2015 grant
170.In April 2015, the Cabinet Office authorised a one-off payment of £4.265 million to Kids Company. Mr Letwin stated that this grant was paid up front because if Cabinet Office “had not given it that money it would have then become insolvent,” but argued that the attached conditions, such as the end-to-end business review, would get the charity “into a position where it did not come back for more”.246 The grant agreement also stipulated that the April grant would be the final grant paid to the charity in 2015.
171.Mr Letwin stated that, had he known the extent to which the charity was mismanaged, he would not have paid the entirety of the April grant up front. He told the Committee that, although he recognised the precariousness of Kids Company’s financial situation in April, he:
had before me documentary evidence about its so-called financial management in the form of audit reports and the PKF Littlejohn report...I studied those things carefully. I could not see any sign from that that this thing was exceptionally financially mismanaged, so I thought it was worth trying to get it on to a stable footing.247
172.Mr Heaton and Mr Letwin both stated that Cabinet Office worked with the charity’s auditors when deciding whether to pay the entirety of the April £4.265 million grant upfront.248 Mr Brooks initially stated that he could not recall having any such conversations with Cabinet Office regarding the April grant. He has since stated that the conversation “would have taken place” but would “have been very brief as I made no file note so it could not have seemed to me of substance or controversial”.249
173.The Cabinet Office Ministers’ faith in Kids Company’s commitment to move to a sustainable operating model was misplaced. This was demonstrated by the charity returning to request additional funding six weeks later. The decision to pay the full amount of the April grant in one lump sum, rather than waiting for fulfilment of any of the grant conditions, was not conducive to accountability. The April grant was one more example of the Government providing emergency funding to enable the charity to manage its cash flow, outside of any competitive or evidence-driven process. It failed to deliver any of the desired outcomes.
Ministerial Direction 2015
174.Having received the £4.265 million 2015–16 grant in April, Alan Yentob met Rt Hon Iain Duncan Smith, Secretary of State for Work and Pensions, and Oliver Letwin on 22 May to request immediate short term funding and a firm commitment to future significant statutory support. Mr Letwin also personally spoke to Mr Yentob about this issue while “sitting in a car in my constituency on the car phone”.250 When faced with Mr Yentob’s assertion that Kids Company would “go bust almost immediately” without an immediate grant from the Government, Mr Letwin said he “did not find it difficult to make [an] objective assessment” and told Mr Yentob “so be it”. 251 Mr Letwin stated that the charity could “give no proper account of why they had failed so dismally to raise the private financing that they had expected to raise in the interim” and claimed that this convinced him that the existing management at the charity had “no idea what was actually going on”.252
175.Despite the Government’s initial refusal to provide a grant, Kids Company Trustees subsequently approached Mr Letwin with a restructuring plan in June, and requested £3 million Government funding to support this. The plan included proposals to reduce operating costs by 40% by Q4 2015 (including reducing workforce by 50%), appoint a new Chief Executive, and appoint four new Trustees. Mr Heaton told the Public Accounts Committee that this “bold restructuring proposal” was something he “could not sign up to, or…advise Ministers to sign up to,” as he did not believe that “Kids Company [would] successfully implement the changes they describe in their new restructuring plans while meeting the stringent conditions set out in the proposed new grant”.253 Mr Heaton’s assessment of the situation was that:
for it to succeed, it required the chief executive to step to one side; the Trustee board to be replaced; management to have the grip to downsize an organisation, which is hard work and difficult; and no drop-off in philanthropic funding. It would require all those things to come to pass for the restructuring to be successful, and I did not think the probability was high enough to justify public money.254
176.Mr Letwin noted that the money to be raised from private funding would drop from £17 million to £10 million, but called Mr Heaton’s assessment “an absolutely accurate description” otherwise. 255
177.By June, Kids Company had not met any of the conditions of the April grant. Rather than producing a contingency plan (due mid-April) for Cabinet Office, Kids Company only submitted a high level summary of savings by department and, “despite repeated requests” from Cabinet Office, did not share its management accounts and forecasts on a monthly basis, as had been agreed. The necessary end-to-end business review due in mid-May was never started, despite the Cabinet Office providing “comprehensive feedback” on Kids Company’s scoping document, and Kids Company did not deliver on the condition to “develop, roll out and implement the measurement of value for money and impact” (although this was to be carried out over the whole grant period). 256
178.Nevertheless, Mr Letwin and Mr Hancock’s letter of direction stated that they took “confidence from the changes that Kids Company has undertaken to make in terms of its leadership, management and governance, which we judge do give it a realistic prospect of long-term viability”.257
179.In neither his letter of direction nor his oral evidence has Mr Letwin provided convincing justification for his and Mr Hancock’s decision to ignore the comprehensive advice of senior officials, whose concerns Mr Letwin acknowledged as accurate and valid. This grant should not have been authorised contrary to advice.
180.After the letter of direction was issued, there was a period of around one month before the £3 million grant was paid to Kids Company. The Cabinet Office explained that during this time it was reviewing the evidence of income that Kids Company had included in their revised cash flow, agreeing the details of the grant conditions with Kids Company, and seeking evidence of Kids Company’s commitment to these. The Cabinet Office was also waiting for the preliminary findings from the allegations made by the ex-employees of Kids Company which the Charity Commission were looking into.258
181.Mr Yentob stated that “an hour and a half” after the Government funds arrived in Kids Company’s account, the charity was notified of allegations of sexual abuse.259 By this point, Trustees had authorised payment of salaries using the Government grant, but philanthropists had not yet paid the £3 million that was due to match the Government’s commitment. Mr Yentob said that the allegations received led him to conclude that “it was quite impossible to carry on doing this, nor did I want the philanthropists to put their money into something that was going to be insolvent when they could set up another charity and look after those children”.260 He therefore advised the philanthropists not to put their money into the charity, and the charity’s Trustees declared Kids Company insolvent on 5 August 2015. Mr Letwin commented that, had it not been for these sexual abuse allegations, his decision to make the final grant payment “might well have turned out, in practice, to have been an abundant success”.261
182. We questioned Mr Letwin about why the Government did not wait until the philanthropists had paid the agreed £3 million before transferring public money, or insist that both grants were paid into an escrow account. Mr Letwin stated that he did not feel this was necessary because he had “a written undertaking” that the funds would be coming the next day.262 Mr Letwin stated that, as the new financial controller had concluded that the charity would be unable to raise the necessary £10 million a year it required, the use of an escrow account “would not have made any difference to the question of whether the charity went bust when it did. Had they put their £3 million in, there would simply be £6 million sitting there”.263
183.We do not share Mr Letwin’s confidence that the restructuring of Kids Company “might well have turned out, in practice, to have been an abundant success” were it not for the allegations of sexual abuse that emerged later. As the new Finance Director had only been in place for a matter of weeks and the new Chief Executive had not been appointed, there was insufficient evidence that the new leadership could transform the organisation’s business model and activities. Our understanding of Ms Batmanghelidjh’s dominant role in dictating the charity’s direction, despite not holding a Trustee position, and her historic refusal to shrink the organisation make us doubtful about whether the new role of ‘President’ would significantly curtail the influence by which she had hitherto controlled the organisation. Equally, the fact that the Chair of Trustees, who had condoned the excessive spending and unsustainable model over a period of 12 years, was to remain on the Board of Trustees for the foreseeable future makes us question the impact that the changes to the charity’s leadership would actually have had.
184.The Government Ministers’ willingness to pay £3 million to the charity before receiving the matched funding from philanthropists was unwise and represents a failure in the responsibility Ministers should take for handling taxpayers’ money. Had the Cabinet Office insisted that the money from philanthropists was received before Government made payment, or insisted that both sources of funding were held in an escrow, this would have considerably increased the likelihood of public money being returned. As it was, £1 million had already been spent by the charity, and it is still unknown whether the remaining £2 million of public money can be reclaimed.
194 Although Mr Hancock’s and Mr Letwin’s Letter of Direction makes their support for Kids Company a matter of public record, Kids Company has received numerous grants from successive administrations (as noted in Appendix B). However, it has proved very challenging to establish definitively which former Ministers approved of historic grants to the charity. This is partially due to record-keeping policies in some departments where submissions annotated by Ministers - amongst other documents - have not been kept.
195 Investigation: the Government’s funding of Kids Company, (NAO, 2015), HC [2015–16] 504
196 A full list of funding provided by central Government throughout successive governments is included in Annex B.
197 The Department for Education was known as the Department for Education and Skills between 2001 and 2007, and the Department for Children, Schools and Families between 2007 and 2010.
199 Q596, oral evidence, 19.11.2015
200 Q545, oral evidence, 17.11.2015
201 Q739, oral evidence, 19.11.2015
202 Qq677, 707, oral evidence, 19.11.2015
203 Prime Minister letters 08.02.2011, 15.07.2013 and 08.01.2014, Nick Hurd 09.12.2013 (unpublished)
204 E.g. ‘David Cameron mesmerised by Kids Company boss’ (BBC, 05.08.20152015), ‘David Cameron “overruled officials” to order Kids Company grant’, (The Telegraph, 04.07.2015), ‘Questions unanswered over No. 10 special treatment for Kids Company’ (The Spectator, 02.11.2015)
207 Q561, oral evidence, 19.11.2015
208 Q694, oral evidence, 19.11.2015
209 Q694, oral evidence, 19.11.2015
210 Q594, oral evidence, 19.11.2015
211 Q582, oral evidence, 19.11.2015
214 Q544, oral evidence, 17.11.2015
215 Q547, oral evidence, 17.11.2015
216 Q617, oral evidence, 19.11.2015
217 Qq621, 619, oral evidence, 19.11.2015
218 Q622, oral evidence, 19.11.2015. In a subsequent note to the Committee, Mr Loughton has outlined the other areas that were once within his remit as Minister but now sit with other Government departments. These include: Child Protection (partly transferred to the Home Office); Child Sexual Exploitation (the lead cross-Government Minister is now in Home Office); Youth Justice (now with Ministry of Justice); Troubled Families (now with the Department for Communities and Local Government), Internet Safety and Cyberbullying (now largely with the Department for Culture Media and Sport).
219 Q709, oral evidence, 19.11.2015
222 Q28 [Chris Wormald], oral evidence to Public Accounts Committee, 02.11.2015
224 Q573, oral evidence, 19.11.2015
225 Q642, oral evidence, 19.11.2015
226 In the 2011–2013 Voluntary and Community Sector grant, for example, Kids Company received more than double that of the next highest charity (Barnado’s, which operated nationally). Investigation: the Government’s Funding of Kids Company, (NAO, 2015)
227 Q572, oral evidence, 19.11.2015
228 Q572, oral evidence, 19.11.2015
230 Q634, oral evidence, 19.11.2015
231 Q634, oral evidence, 19.11.2015
232 Q637, oral evidence, 19.11.2015
233 Q784, oral evidence, 19.11.2015
234 Recommendation (i), HC [2015–16] 504
235 Recommendation 8 (iii), HC [2015–16] 504
236 The NAO has also pointed to the benefit of developing contingency plans to deal with provider failure in ‘Principles Paper: Managing Provider Failure’ (NAO, 2015)
238 Q714, oral evidence 19.11.2015
239 Q484, oral evidence, 17.11.2015
240 Q714, oral evidence, 19.11.2015
241 Q782, oral evidence, 19.11.2015
243 Q775, oral evidence, 19.11.2015
244 Q490, oral evidence, 03.11.2015
245 Q777, oral evidence, 19.11.2015
246 Q656, oral evidence, 19.11.2015
247 Q711, oral evidence, 19.11.2015
248 Q38, [Richard Heaton], oral evidence [to PAC], 02.11.2015. Q712 [Mr Letwin] oral evidence [to PACAC], 19.11.2015.
249 Mr Brooks clarified this in a follow-up note to the Committee.
252 Qq685, 688, oral evidence, 19.11.2015.
253 Q55, oral evidence to PAC, 02.11.2015. Mr Heaton also laid out his objections to the grant in his request for Ministerial Direction.
255 Q774, oral evidence 19.11.2015
257 Letter of Direction, 29.06.2015
259 Q200, oral evidence 15.10.2015
260 Q200, oral evidence 15.10.2015
261 Q751, oral evidence 19.11.2015
262 Q721, oral evidence 19.11.2015
263 Q752, oral evidence 19.11.2015
© Parliamentary copyright 2015
Prepared 28 January 2016