It will become a lot harder for ministers to hand out large sums of money to favoured causes, and changes have also been made to a controversial "gagging" clause.
The National Audit Office inquiry into Broken Rainbow comes after BuzzFeed News revealed allegations of serious financial mismanagement at the Home Office-funded charity.
"It's like Kids Company." Luxury gifts and first-class travel for executives. Home Office grants spent in 24 hours. Warnings ignored by trustees and the Charity Commission. A BuzzFeed News investigation into the closure of Broken Rainbow.
The National Council for Voluntary Organisations told BuzzFeed News that charities are being “punished” by the government because of Kids Company’s failings.
The former Kids Company chief executive was speaking during an interview with BBC Radio 4's Woman's Hour.
After receiving £ 46 million of public money, the south London kids charity collapsed in August 2015 following a series of shocking reports. This is how it unfolded.
The charity’s collapse was caused by “negligent” trustees, according to MPs who were also highly critical of ministers and regulators.
The police said they found "no evidence of criminality within the 32 reports which would reach the threshold to justify a referral to the Crown Prosecution Service".
Updated: A Health and Care Professions Council tribunal has found "all charges proven" against Dr Helen Winter, but did not strike her off permanently.
Dr Helen Winter admitted misconduct at a hearing in London on Thursday.
Local government officials have revealed the scale of the police inquiry into the now-closed charity. Updated: Kids Company has now responded to this story.
Updated: A report has been commissioned into the external activities of senior managers after the corporation's creative director stepped down.
Appearing before an inquiry on Thursday, Oliver Letwin defended his decision to give Kids Company millions in public funds.
"Wouldn't that be fraud?" asked the chair of a Commons committee after hearing that accommodation worth an annual equivalent of £420,000 was a gift from a donor.
The public accounts committee issued a devastating report on Whitehall's relationship with the collapsed charity on Friday.
Updated: Batmanghelidjh made the demand to BuzzFeed News and BBC Newsnight after an unnamed employee made explosive claims about the charity's management.
Pressure builds on public administration committee chair Bernard Jenkin to recall senior charity figures Camila Batmanghelidjh and Alan Yentob.
The House of Commons public accounts committee chair told senior Whitehall officials it was "staggering" that questions weren't being asked about the charity some time before its collapse.
A confidential auditor report seen by BuzzFeed News and BBC Newsnight piles pressure on ministers Oliver Letwin and Matt Hancock over the decision to hand the charity £3 million.
A report by the National Audit Office leaves the government with "questions to answer", said public accounts committee chair Meg Hillier.
The charity's former chair of trustees Alan Yentob was criticised by the mother of 17-year-old Jerrell Elie, who died in August.
"I do not acknowledge that the problem has been a failure to manage," he said in 2010.
The hearing provided a great spectacle, but appears to have left more questions than answers.
After a fiery hearing in parliament, Camila Batmanghelidjh's explanation of discrepancies in the number of clients helped by the collapsed charity have been questioned by Southwark's leader.
Ahead of a Commons inquiry on Thursday, newspapers are reporting that former chief executive Camila Batmanghelidjh is being investigated by police.
Exclusive: The charity's trustees and the Charity Commission were warned about serious concerns for more than a decade before collapse.
The broadcaster's creative director apparently contacted a Radio 4 presenter shortly before a report aired.
The National Audit Office said money was given to the charity despite advice it "was not likely to be value for money".
A House of Lords debate heard the charity was "clearly inadequately managed". Updated: The House of Commons Public Administration and Constitutional Affairs Committee will begin an inquiry in October.
Kids Company Chair Signed Email Warning Of "Arson Attacks On Government Buildings" And "Savagery" If Charity Closed
BuzzFeed News and BBC Newsnight have obtained a document signed by Alan Yentob that was sent to the Cabinet Office.
BBC Newsnight and BuzzFeed News were told by government sources on Friday that the charity had "far fewer" clients than expected.
Updated: It transpires that the donor alleged by Camila Batmanghelidjh to have pulled out of funding Kids Company to the tune of £3m was hedge fund manager Stuart Roden. He denies the claim.
The witnesses were referred to the Metropolitan police by BuzzFeed News and BBC Newsnight. The complex case team of the sexual offences, exploitation and child abuse command then launched an investigation.
Tonight's edition of Radio 4's The Report, described a charity that received money for a job that remained vacant for two years and whose handouts meant Fridays were "weed heaven".
"My key worker is everything," a woman told BuzzFeed News. "I speak to them every day. They're a huge part of my life."
"We've had to abandon a lot of children," the charity's CEO, Camila Batmanghelidjh, told the BBC.
The decision comes as the charity is being investigated for potentially criminal offences by the complex case team of the Metropolitan police's sexual offences, exploitation, and child abuse command.
The investigation was sparked by evidence handed to the authorities by BuzzFeed News and BBC Newsnight.
The government told the charity that it would only receive an additional £3 million of funding if its boss stepped aside.
Following the revelation that the Cabinet Office is withholding funding from the charity, media reports over the weekend have raised further concerns.
In an interview with Newsnight Camila Batmanghelidjh defended her record as head of the high-profile charity and dismissed accusations of financial mismanagement.
Camila Batmanghelidjh says she is being "silenced" over government cuts.
A joint investigation by Newsnight and BuzzFeed News has revealed the Cabinet Office is withholding funding from the charity unless Camila Batmanghelidjh steps aside.