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Kids Company implodes over funding and financial management storm

Crisis came to a head when it emerged government grant had been misspent by Kids Company interim FD

A LACK of transparency, a ‘mis-spent’ £3m grant and questions over the probity of its financial management has led to the closure of the Kids Company charity.

Once feted by celebrities such as rock group Coldplay, who donated £8m, Harry Potter author JK Rowling, entrepreneur Richard Branson, the charity this week closed its doors amid accusations that its trustees failed to heed warnings about the paucity of its finances.

According to the Guardian, two finance directors at Kids Company quit the business in less than three years over frustrations that the charity’s board of trustess – led by the BBC’s Alan Yentob – and its flamboyant chief executive Camila Batmanghelidhjh, failed to heed warnings of the need to build up financial reserves.

An analysis of the charity’s accounts undertaken by the newspaper reveal its funding increased by 75% between 2009 and 2013, but that it was burning through cash at almost the same rate.

“If you keep building an organisation without building reserves, then it’s a house of cards and it will fall down,” one source who worked in a senior role at the charity for several years told the Guardian.

According to the source, the charity “got complacent” over its lack of reserves because of repeated government bailouts, while warning notes on the charity’s accounts stated that its reliance on securing continuing grant income had “often put a strain on the charity’s cash flow”

Yentob on Thursday dismissed claims of financial mismanagement at Kids Company as “complete rubbish”. He told Channel 4 News: “The idea of what I have heard some journalists call ‘appalling financial mismanagement’ is complete rubbish”.

Payroll gaffe

The charity, founded in 1996 by Batmanghelidhjh, to work with disadvantaged children, became embroiled in a row over a government grant after Department for Education ministers made known their opposition to the charity being funded by the taxpayer.

Kids Company’s demise looked inevitable as soon as the government announced it would stop its £5m annual grant at the end of the current financial year. It then entered into separate negotiations with the Cabinet Office over a one-off £3m cash injection empowering it to restructure. Several hundred job losses were expected as a result.

The growing sense of crisis engulfing the charity came to a head this week when it emerged that £800,000 of the £3m government grant, which ministers are trying to claw back, had been spent by its interim finance director on payroll and not for the purposes intended.

Batmanghelidjh told BBC Radio 4 that she was “gobsmacked” by the way the way its arrangements with the government had been depicted.

“There’s an email from our interim restructuring finance director to the Cabinet Office saying ‘Where is this money, otherwise we can’t pay the staff salaries?’,” Batmanghelidjh said.

“And there’s no email coming back from the Cabinet Office saying this money is not for staff salaries.”

The government only released the funding after Batmanghelidjh confirmed she would step down and take on a new ‘presidential’ role.

Batmanghelidjh told BBC Radio 4 that she was “gobsmacked” by the way the way its arrangements with the government had been depicted.

On its website, the charity’s denies its problems are due to mismanagement. In a statement it said: “Kids Company has sustained its services for 19 years growing from one centre under railway arches to a service which reached 36,000 children, young people and families.

“To be able to maintain a sophisticated operation the organisation was routinely audited in respect of its governance; management and financial accountability. All were found to be exemplary with the only problem being that there was not enough sustainable source of income given the high level of needs the charity was supporting.”

Kids Company served children who often self-referred themselves, many having experienced physical and sexual violence, addiction, family breakdown and mental illness.

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