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Kids Company’s Fall Was Result Of “Extraordinary Catalogue Of Failures On Every Level”

The charity’s collapse was caused by “negligent” trustees, according to MPs who were also highly critical of ministers and regulators.

The collapse of Kids Company was caused by an “extraordinary catalogue of failures” by the charity’s “negligent” trustees, according to a damning report by MPs that also laid out a catalogue of mistakes by government ministers and weaknesses in regulation and oversight.

The Commons public administration committee (PACAC) found that the trustees, chaired by former BBC executive Alan Yentob, relied upon “wishful thinking” and “false optimism” in their running of the charity. The committee said it had heard “extraordinary accounts of luxury items and holidays or spa days being lavished on ‘Camila’s kids’, a favoured group of clients”.

This expenditure, it said, “diverted charitable funds from other projects and programmes that had the potential to provide more long-term and effective support to a wider group of young people”. It was, the committee felt, “inappropriate, unwise and irresponsible”.

One former employee told the committee that “so many young people were kept dependent on large sums of money and never guided towards independence and now – overnight – have been thrown back into society without a clue as to how to cope”.

This kind of “negligent financial management”, the inquiry found, “rendered the charity unable to survive the predicted reduction in donations following the emergence of allegations of sexual abuse.” The Metropolitan police investigation into these allegations culminated last week after the police said there was no evidence of criminality that would reach the threshold to justify referral to the Crown Prosecution Service.

The trustees, PACAC said, had a “complete lack of experience of youth services”, which meant they couldn’t assess the spending the charity’s boss, Camila Batmanghelidjh, “justified on the basis of clinical judgements”, a situation the committee found “extraordinary”.

The committee was particularly critical of Yentob, whose evidence it said showed “a lack of proper attention to his duties as Chair of Trustees and a continuing inability to recognise those failures”.

Much of this failure, the committee found, lay in his and his board’s inability to restrain the “unaccountable and dominant” Batmanghelidjh, who in 2014, it was revealed in the report, turned down “unlimited” funding from a donor at a time the charity was in £4 million deficit because, according to her, they lacked “emotional authenticity”.

The committee’s criticism of Yentob was even more damning regarding his role at the BBC last year, when he was said to have interfered in news reports about the charity. The report stated: “His actions were unwise at best, and deliberately intimidating at worst,” adding that the fact he could act in this manner for so long without action being taken “reflects poorly on the BBC’s leadership”.

The charity’s trustees produced a furious response to the committee’s criticisms, saying: “It is a regrettable feature of British democracy that the committee can use the curtain of parliamentary privilege to produce what is an irresponsible report, immune from the defamation claims that would inevitably follow without this privilege.”

They described the conclusions of the report as “astonishing” and said the committee had “naively accepted allegations made in the media and by a small number of individuals, some with vested interests in damaging Kids Company and its much praised model of loving care and practical support”.

They added: “The committee quotes former employees as claiming they alerted the trustees to concerns but that the trustees failed to act on them. The trustees have the evidence that proves those claims false and would have been happy to provide it to the committee.

“The committee says the trustees ‘ignored repeated warnings about the charity’s financial health’ but even a cursory glance at the charity’s board minutes (which the committee had) show that claim to be false.”

The report is also highly critical of government ministers and their relationship with Kids Company. It finds that “unorthodox payments” were authorised by ministers despite warnings from civil servants and auditors about the state of the charity’s finances. This, it says, gave “tacit approval to an unsustainable and inadequate business model”.

Its most damning words are reserved for the Cabinet Office minister Oliver Letwin, who signed off a contentious £3 million grant just days before the charity closed.

“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,” the committee said. “This approach has been proved to be an unjustifiable way to conduct Government business and to handle public money.”

The committee said it did not share Letwin’s view that a proposed 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 after the grant was awarded.

In response to the report, Letwin announced that he would review the government’s grant-making process. "As I said to the Committee I believed it was the right thing to do to give this charity one last chance to restructure,” he said.

"We will of course pay careful attention to this report and in light of what we now know about Kids Company we will be reviewing our grant-giving process … By updating the process by which grants are awarded we will make sure the most stable, most effective charities receive taxpayer funds."

It appears the move could not come too soon. “By continuing to fund the charity's cash flow crises,” the committee found, “successive Governments gave tacit approval to an unsustainable and inadequate business model and eroded any incentive for Kids Company to address its own governance and management failings.”

The committee said “Batmanghelidjh and Kids Company appeared to captivate some of the most senior political figures in the land”, and that “as a consequence, objective judgements about Kids Company were set aside and the government's relationship with Kids Company was forged outside the usual decision-making processes of Whitehall departments".

The committee found “no evidence of direct instruction” from Number 10, but former children’s minister Tim Loughton’s evidence that Batmanghelidjh was “almost the poster girl at the Big Society summit that the Prime Minister held” was noted. This kind of “noise”, Loughton felt, may have influenced decisions taken by his department. One member of the committee, Paul Flynn, has already come out to express his displeasure that Cameron was not asked to give evidence.

The report concluded that “relevant departments” should control grants, and not the Cabinet Office – the department “most closely under the Prime Minister’s control”. The fact it was only in 2015 that the government acknowledged the need for “robust examination” of outcomes was, the committee felt, “astounding”.

Letwin’s decision to award the charity a £4.265 million grant on 28 July while serious allegations of misspending were being investigated by the Charity Commission was seen as an error by the committee, which suggested that “in future, no department should hand over money to an organisation in which serious allegations have not been fully investigated".

Six weeks later, the charity asked for more money and, as BuzzFeed News and BBC Newsnight revealed, Letwin and fellow Cabinet Office minister Matt Hancock overrode officials’ concerns to grant it. The committee found Letwin had provided no “convincing justification” of his reasons for doing so. Only days later, the charity closed down. It is now unknown if the government will receive back £2 million of the £3 million it granted, the report said.

The report also looked at Kids Company’s safeguarding procedures. In July last year, following advice from an independent safeguarding expert, BuzzFeed News and Newsnight alerted a local authority with safeguarding responsibilities to a number of allegations of abuse made by former members of staff. The local authority investigated and escalated the information to New Scotland Yard, which opened an inquiry. The news that it had done so, according to Yentob, was what forced the charity’s closure.

Last week, the police said they had found “no evidence of criminality ... which would reach the threshold to justify a referral to the Crown Prosecution Service”, and had also found “no failings by the charity in respect of them carrying out their duty to safeguard children or vulnerable adults”.

This latter statement, however, is very much at odds with the committee’s findings, particularly its analysis of a safeguarding incident detailed in the report – in which a staff member offered MDMA to a vulnerable client in a toilet in Vauxhall. The committee found the way the charity handled this serious safeguarding failure was “inadequate” and “irresponsible”. The committee noted that personal information about an employee was used to assess their credibility after they attempted to blow the whistle.

The report also noted that a former employee referred to “two very serious incidents of unprofessional clinical and safeguarding practice in the past 3 years” and cited the evidence of David Quirke-Thornton, the social services director in Southwark, who told them “children’s services purposefully seek to achieve a safe distance between vulnerable children and young people and adults” but that “boundaries appeared to have become blurred” at Kids Company.

As a result of these concerns and citing “a number of safeguarding issues which have come to [the committee’s] attention during the conduct of this inquiry into Kids Company”, the committee proposed that the whole sector might need new rules on safeguarding, recommending “statutory regulation of charities who have safeguarding responsibilities for children or vulnerable adults”.

In response, the charity’s trustees said PACAC’s “naivety in believing the claims of a few detractors of Kids Company” had been highlighted by the fact the Metropolitan police had dismissed “all 32 false claims made concerning sexual and physical abuse".

They added: “The committee accuses the charity of having poor safeguarding practices, when all the evidence shows it was a model of best practice in this field for a period of 19 years,” citing the fact the police found no evidence that it had failed to carry out its safeguarding procedures.

Quite apart from the issue of safeguarding, PACAC’s report raises significant concerns about the lack of oversight offered by regulators. The charity, the report found, was subject to few formal inspections. Ofsted looked at its facility in Bristol and found it was “unlikely to meet regulatory standards”, and added that it had “been alerted to concerns that an unregulated school was being operated” at a centre in south London, but the charity closed it before an inspection could be organised.

The Charity Commission, the committee felt, “is currently undermined by limits in its powers and resources”. The committee felt it “projects too limited a public profile to provide much reassurance about charities and their regulation, and to attract complaints”.

The regulator is currently investigating the now-closed charity. The report noted that the Charity Commission has new powers that can disqualify people from being trustees of other charities and even went so far as to say that they “may be applicable” in the case of Kids Company.

Kids Company’s trustees said: “The timing and tenor of this report are matters of deep concern. The Charity Commission is the body with the competence and statutory function to regulate charities and investigate allegations of misconduct. The Commission is now in the middle of its investigation and this report can only interfere with the proper functioning of that investigation.”

Even the charity’s auditors did not escape criticism. Kingston Smith was criticised for failing to alert the Charity Commission of the “high risk of failure in this charity”. The firm, along with PricewaterhouseCoopers and PKF Littlejohn, was criticised for not reporting its concerns to the Charity Commission, trustees, or the Cabinet Office. Batmanghelidjh’s repeated claims regarding the 19 clear years of audits the charity received, the committee felt, were “true”, but also “disingenuous”, because each time they were signed off, there were “significant warnings” about how precarious its situation was.

The report found Kids Company “did provide some support to many vulnerable young people, although the evidence found that this was on a considerably smaller scale than it claimed in its publications and annual reports”. The evidence suggested the figures it claimed were “significantly over-inflated” and “misleading to donors”. On top of this, it found that while the charity did “valuable work”, it was “both sad and disappointing” that “robust evaluations” of its outcomes were lacking.

It warned the charity’s message that vulnerable young people must be “supported with compassion and personalised care” should not be lost with its collapse.

Committee chair Bernard Jenkin said: “The Committee has heard many positive accounts of the valuable work Kids Company did with some very vulnerable clients, and of employees who were inspired and motivated by the quality of support they could deliver to young people. This makes the board’s failure to ensure the charity’s sustainability all the more tragic.

“There has been a litany of allegations of inappropriate ‘therapies’, lavish spending and abuse of power within the organisation, and we hope that this episode highlights to all trustees that protecting the reputation of an organisation is a core element of good governance. To execute this, trustees must ensure they have the breadth of knowledge and experience necessary to understand their charity’s business.”

He added: “There appears to have been a catastrophic confluence of factors that have conspired to allow this charity to operate as it did, for as long as it did. I fear the repercussions of this episode are far from played out, but one of them must be a radical change in our approach to charity regulation at every level.”

The committee said it had heard from staff and clients who shared positive and negative experiences at the charity, the latter sometimes doing so anonymously, “owing to their fear of reprisals from supporters” of the charity. It said these fears were “indicative of what these people felt about the way in which Kids Company operated in its dealings with some staff and former clients".

The trustees, for their part, said: “Practically no weight has been given to the evidence presented to the committee by numerous witnesses who were closer to the work of the charity. The committee interviewed only one of the eight former trustees and has ignored nearly all the evidence he gave. It has also simply dismissed the reports of leading accountancy firms, clinicians and other specialists who expertly analysed the governance, operations and finances of the charity.”