South London charity Kids Company has told government officials that it will close its services on Wednesday, two sources have exclusively revealed to BuzzFeed News and BBC Newsnight.
The decision comes as the government is in the process of clawing back a contentious grant of £3 million that the troubled charity was paid following an initial disbursement of £4.265 million in April.
The two sources close to the government told BuzzFeed News and BBC Newsnight that they believe the £3 million payment, which was supposed to be used for restructuring, was being used for day-to-day running costs.
The charity declined to confirm the news, stating that "speculation of this kind is both dangerous and irresponsible". The Cabinet Office, which gave the charity the loan, declined to comment.
The charity has been in financial distress for some time. In the last week or so, local authorities have made preparations to step in and help young people needing support in the event of a financial collapse, a local government source said.
In mid-July, the charity confirmed that chief executive Camila Batmanghelidjh would step down in October – a condition of the government's £3 million payment. BuzzFeed News and BBC Newsnight understand that the payment was subsequently agreed on Tuesday 28 July and hit the charity's accounts two days later.
Leaked emails suggest that the charity may have used the money to pay staff rather than to restructure. BuzzFeed News and BBC Newsnight have been forwarded a batch of messages Batmanghelidjh apparently sent to staff in July. BuzzFeed News is attempting to independently verify their authenticity. One, on 28 July, reads:
I am so sorry you have not been paid yet. We are waiting for exchanges between the government and the philanthropists and trustees to be completed. We had expected for these discussions to be resolved earlier and that's why you had not received warning communications. We are moving forward with the expectation that a resolution will be arrived at tomorrow.
I'm sorry for the stress this has caused you, and I really appreciate your patience and your commitment. We understand the urgency and are doing our very best.
It is understood that Kids Company staff are paid on the last day of the month. The emails suggest that they had not been paid since May.
On 30 July, Batmanghelidjh apparently wrote in an email to staff that they would be would be paid the following day, writing: "I just want to let you know that we have just received our funding from the government and are processing payroll right now."
Also on 30 July, BuzzFeed News and BBC Newsnight revealed that police were investigating the charity after whistleblowers alleged that potentially criminal offences had taken place in two of its centres and had not been reported to the proper authorities.
The decision to award Kids Company more money was controversial: The Cabinet Office stated that the money, paid in April, would be the last of the financial year and encouraged the charity to "move to a more financially sustainable model". Instead, Kids Company asked for more money.
After looking at the request, the Cabinet Office's permanent secretary, Richard Heaton, wrote to ministers Matt Hancock and Oliver Letwin asking for a "ministerial direction" on whether to give the charity the money.
He said: "It is ... my judgement that the proposed additional £3m grant does not represent value for money, in terms of delivering the outcomes for which the department is funded by parliament."
Such a request for ministerial direction is relatively rare. However, as BuzzFeed News and BBC Newsnight exclusively reported, the ministers went against Heaton's advice: They supplied the funds to Kids Company on the condition that Bamanghelidjh step down from her role.