A report into the charity’s financial and governance controls by accountants PKF Littlejohn, commissioned by the Cabinet Office, warned that Kids Company’s cash flow was its “main financial risk”.
The report, which was produced in March 2014, states: "Without improving the cash position of the charity it is not possible to build reserves and invest in new activities and locations."
It adds that improvements to its financial planning were needed “in light of the serious cash flow position that the charity often finds itself in”.
The report reveals that within a month of PKF making visits to the charity in January, Kids Company reported that improvements based on recommendations made by the accountancy firm were either completed or in the process of being completed.
However PKF concedes that it had not verified this so was unable to confirm whether stated changes were in place.
Recommendations included ensuring accounts looked ahead to projected income and “should reflect anticipated payroll costs, kids costs based on current trends and expected income levels based on the probability of donations and other sources of income being received.”
Kids Company representatives told PKF in February 2014 that this process had “already been agreed and is now completed”.
The charity also said in February 2014 that a similar recommendation to ensure accounts have a robust forecast of the cash flow over the next 12 months had also been completed.
Other concerns raised by PKF included the cost of work carried out by the charity exceeding the funding it received.
The accountancy firm told the charity that it needed to look more closely at the actual cost of work it carried out and ensuring that this was reported back to its funders.
The report says: “We identified one instance where the amount reported exceeded the costs reflected in the project analysis.”
The charity told PKF Littlejohn in February 2014 that it would investigate the “error”.
Despite concerns around its financial reporting and forecasting PKF praised the charity’s governance procedures and purchasing. It also said there were “no significant weaknesses in the payroll system”.
Publication of the report follows the closure of the charity on 5 August this year amid claims of financial mismanagement and funds not being properly accounted for.
A failure to secure Cabinet Office funding was reportedly a key factor in its closure.
Speaking to CYP Now on the day of closure, Kids Company founder Camila Batmanghelidjh said civil servants, politicians and the media were responsible for its collapse.
Last week the Charity Commission announced that it will carry out an official investigation into Kids Company which will look into concerns around the “administration, governance and financial management of the charity, and identify wider lessons for other charities and trustees”.