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National Audit Office report: Investigation: the government’s funding of Kids Company

Investigation: the government’s funding of Kids Company

Kids Company, a children’s charity, received at least £46m of public funding. Officials raised concerns about the charity’s cash flow and financial sustainability at least 6 times between 2002 and 2015 but the charity never reached a position where it was able to operate without government assistance.

The National Audit Office has published the findings from its investigation into the government’s funding of Kids Company. The public sector has provided funding to Kids Company for at least 15 years, although the government’s records suggest the charity started applying for public sector funding as early as 1996. On 5 August 2015, Kids Company closed and was subsequently wound up as it was insolvent.

The key findings of this investigation are as follows:

  • Kids Company received at least £46 million of public funding (£42 million in central government grants; £2 million from local authorities and £2 million in grants from a number of Lottery bodies). The majority of the funding (£28 million) came from the Department for Education (DfE) and its predecessors. The Cabinet Office, the Department for Work & Pensions, the Department for Communities and Local Government and the Department of Health also made significant contributions between 2013 and 2015. In addition, Kids Company’s accounts for 2003 report that Inland Revenue (now HMRC) wrote off tax debts of £590,000.
  • Kids Company received larger grants than any other charity from DfE’s grant programmes. In both 2008 and 2011, Kids Company successfully bid for funding under competitive grant programmes, and was awarded a total of £21.7 million, the largest amounts that any charity received under either programme. In 2008, Kids Company received 20% of the available funding for the grant programme; the remainder was shared between 42 other charities. In 2011, Kids Company received over twice the amount received by any other grant recipient.
  • Kids Company has not had to compete for its annual grant since 2013. After it failed to win grants through the competitive process the DfE made a public interest case for continuing to fund Kids Company outside of the competitive process, due to precedent (DfE had funded the Charity since 2005), the quality of the work Kids Company did (particularly with young people who were not in education, employment or training (NEET)) and the reputational damage to the Government’s wider agenda (which would have an impact on delivery) if it had withdrawn funding. Ministers asked DfE to coordinate a two-year cross-government grant. Similarly, the Cabinet Office paid a further cross-government grant in 2015-16 without requiring a competitive bid from Kids Company.
  • Government was aware that Kids Company relied on government grants to manage its cash flow. The charity requested early payment of grants in December 2013 and December 2014. Government agreed to these requests and paid the whole annual grant for 2015-16 (£4.3 million) in April 2015 rather than quarterly as in previous years.
  • Until 2013, Government relied heavily on Kids Company’s self-assessments to monitor its performance. DfE oversaw the grant funding of Kids Company until 2013 but has limited records of monitoring activities prior to 2011 as its grant programme was managed by an agent from 2008 to 2011.
  • The Cabinet Office took responsibility for youth policy from July 2013 and adopted a more systematic approach to overseeing Kids Company. The Cabinet Office commissioned an external review of Kids Company’s financial management and governance controls, to inform decisions in relation to funding.
  • In June 2015, Cabinet Office officials advised ministers that a further grant to Kids Company did not represent value for money. Officials reported Kids Company had not yet met earlier grant conditions and cited uncertain future cash flows and poor financial management as reasons for not funding the charity further. Ministers directed officials to pay the charity £3 million to support restructuring in order to secure long-term sustainability.
  • The concerns raised by the Cabinet Office in 2015 were not new. Officials repeatedly expressed concerns about Kids Company, but government continued to respond to the charity’s requests for funding. Briefings to ministers in 2002, 2005, 2007, 2010, 2012 and 2015 show that officials accepted Kids Company’s assertions that it would become insolvent without government grant funding.
  • In each funding round, government planned to work with Kids Company to secure longer term sustainability and reduce its dependence on government grants. Kids Company consistently asserted it was providing statutory services and should be funded on a statutory basis. The government never accepted this assertion but did continue to fund Kids Company.
  • To date, the details of around 1,900 cases have been passed by Kids Company to local authorities who are reviewing these to determine what support is needed.

Published: 29 October 2015

 

Publication details:

ISBN: 9781786040107 [Buy a copy]

HC: 556, 2015-16

Published date: October 29, 2015