A National Audit Office (NAO) investigation into the government funding of the charity, which was wound up in August 2015, found that it had been handed significant sums of money despite repeated concerns from officials over its financial management.
Concerns were raised within Whitehall at least six times since 2002 but the charity successfully convinced officials that it would collapse without government intervention, the NAO investigation found.
The Department for Education and its predecessor departments were found to be the chief funder, handing the charity £28m.
In total £42m in central government funding was received by the charity, with the Cabinet Office, the Department for Work and Pensions, the Department for Communities and Local Government and the Department of Health among those who made “significant contributions.”
The charity also benefitted from £2m in council funding, the same amount in lottery grants and in 2003 the Inland Revenue wrote off tax debts of £590,000.
The investigation found that the public sector has funded the charity for at least 15 years, although some records suggest funding could have started as early as 1996, when it made its first application for government money.
The NAO report made particular note of the charity’s relationship with the DfE. No other charity received larger grants than Kids Company, which in 2008 received nearly a fifth of the total grants made by the DfE, with the remainder shared between 42 other charities.
The investigation also revealed that since 2013 Kids Company has not had to compete for its annual DfE grant. The charity failed to win DfE funding through a competitive tender in that year but the department made a public interest case to continue funding it.
Among concerns raised within Whitehall about the charity was a Cabinet Office-commissioned independent report by accountants PKF Littlejohn that warned that the charity’s cash flow was a “financial risk”.
This report, which was produced in March 2014 but was only made public in August this year, warned that “without improving the cash position of the charity it is not possible to build reserves and invest in new activities and locations.”
The National Council for Voluntary Organisations has expressed concern that Kids Company was allowed to receive such substantial sums of public money while other charities missed out due to government funding cutbacks in recent years.
Commenting on the NAO investigation, Karl Wilding, NCVO director of public policy, said: “During a period when government grant funding to charities declined significantly, Kids Company received at least £42m from seven different departments. What’s more, it did so without much apparent accountability for how that money was spent.
“Most charities with government contracts or grants have to put together detailed bids and account carefully for every penny they spend.
“Despite its significant income, Kids Company chose not to build up financial reserves in the way responsible charities do in order to see them through lean times.”
Meanwhile, the House of Commons public accounts committee has launched an inquiry into the closure of the charity. Senior civil servants, the former Cabinet Office permanent secretary Richard Heaton and Chris Wormald, permanent secretary of the DfE, have been called to give evidence at a hearing next Monday (November 2).
Government’s relationship with Kids Company is also being investigated by the House of Commons public administration and constitutional affairs committee (PACAS).
At a PACAS hearing earlier this month, Kids Company founder Camila Batmanghelidjh defended the charity’s decision not to hand councils information about all the cases of vulnerable children on its books.
She also said that the main reason the charity struggled financially was that it was supporting children with extreme risks and high levels of need that should have been cared for by councils.
