The Cabinet Office will refuse to provide more funding to Kids Company, the renowned London children's charity, unless its high-profile chief executive Camila Batmanghelidjh steps down, a joint investigation by BBC Newsnight and BuzzFeed News has revealed.
The department had been negotiating with the charity – which has received prominent backing from David Cameron, the Prince of Wales, and a host of celebrities including members of the band Coldplay and J.K. Rowling, and whose chair is Alan Yentob, the creative director of the BBC – about providing it with £4.25 million of public funds for the next financial year.
However, BBC Newsnight and BuzzFeed News has learned that the Cabinet Office has concerns about recent claims of misbehaviour at Kids Company, and the government department has now decided that it will hold back £3 million in funding to the charity unless founder Batmanghelidjh steps aside from her managerial role. The charity was founded in 1996 to work with children and young people in central London and has enjoyed a high media profile under Batmanghelidjh's leadership.
The news is the latest blow to the charity, which has been under fire in recent months as questions have been raised about its operations. Former government advisers have publicly claimed that the prime minister has blocked previous attempts to cut state funding to the charity.
In March, Dominic Cummings, a former Department for Education adviser, revealed that officials from the department had questioned the financial management of the charity, saying they "did not think taxpayers' money should be given to it".
He claimed that ministers had "accepted this advice", but Batmanghelidjh "had written to the PM, who overturned the decision, so Kids Company did get the money."
BuzzFeed News and BBC Newsnight spoke to a number of ex-employees of the charity who expressed concerns about its management. Jack Widdows, a former youth worker at the Kenbury Centre who left the charity in 2010, described Batmanghelidjh as a "South London Sepp Blatter".
Previously published claims against Kids Company include suggestions it hands out money to children, a complaint to the Charity Commission about the charity, and the resignation of a number of the organisation's directors.
Earlier this year a former employee, Genevieve Maitland Hudson, who joined the charity in 2008, wrote on the website of OSCA, a consultancy, about her time there. She claimed that on Fridays "little packages of cash were handed out to every young person through a small window in reception. It was always tense. There were tears. There was shouting. There were threats. There were fights."
The Spectator also reported how an elderly benefactor, Joan Woolard, had sold her house in order to donate to the charity, but had ended up complaining to the Charity Commission in order to demand back the money. Woolard told the magazine she had never been informed how the money would be used, and shortly after an argument with Batmanghelidjh she decided to volunteer at the charity, where she said she was struck "by the absence of children".
She also expressed concern about suggestions that the charity's money was being handed out to children: "I was also told that others who visit the charity are given cash allowances to supplement their Jobseekers' Allowances and to prevent them from stealing or dealing drugs. I don't think private donors or the government give Kids Company money so that it can be handed out to young people in cash?"
In response to this allegation, Batmanghelidjh said, "Money is only spent on the most destitute of our clients," and also went on to express concerns about Woolard's mental health.
In her 2012 book Among the Hoods, the journalist Harriet Sergeant wrote about a youth charity that did not help as many people as it claimed: "Instead of fifty or sixty young people... there was just one teenager over whom ten staff hovered."
She described how one child had started "going to the charity at fifteen. Two years later he was a crack addict. … He just picked up money every week, which he spent on his addiction." Sergeant has confirmed to BBC Newsnight and BuzzFeed News that while the description refers to events from seven or eight years ago, she was making the claims about Kids Company.
In March, Diane Hamilton, the charity's interim finance director; Adrian Stones, the charity's human resources chief; and Mandy Lloyd, the charity's director of development, all resigned. The charity issued this statement: "It was with great regret that they felt unable to continue working within the organisation because of the uncertainty of funding, which led to high levels of stress in the workplace which was unsustainable."
However, at the time the story broke, the Sunday Times quoted a source close to the charity's directors, who claimed: "These departures are a direct result of these employees' doubts about the future of Kids Company. ... The trustees were told of their doubts but they don't seem to have reacted at all."
In response to tonight's news, Batmanghelidjh said: "At this stage, I'm not at liberty to comment. I have to safeguard the provision for the children and the staff."
A spokesperson for the Cabinet Office said: "Making sure that every child has the best start in life is our top priority, so we will continue to work with Kids Company to ensure its important work is sustained."