The report say it was ‘staggering’ that the government has given over £40m to Kids Company over the past 13 years and still has no idea what it was getting for taxpayers’ money.

It goes on to state: ‘Kids Company was a favourite of successive ministers but accounting officers have to make decisions, sometimes under pressure, to safeguard taxpayers’ money: in funding Kids Company for so long they have not served taxpayers or children across the country well.’

The committee said funding decisions were not based on evidence nor did they follow due process, with the result that departments had to develop ways of making the funding available ‘including whip-rounds across government’.

The report claims that accounting officers across government failed to stand up to ministers, saying  for many years they did not challenge whether decisions to fund Kids Company represented good value for money, and therefore did not seek a direction from ministers.

PAC says it will be examining the relationship between accounting officers and ministers when taking evidence on a forthcoming National Audit Office report on accountability for taxpayers’ money.

It says there was insufficient scrutiny of what Kids Company was delivering for taxpayers’ money, and described the metrics government used as ‘severely ill-judged’. The committee is very sceptical about what it calls the charity’s inflated claims for what it achieved and criticises the government for taking these on face value.

In addition, there was no attempt to assess how the charity’s innovative approach could be replicated across other areas of the country.

 PAC also accuses the government of ignoring Kids Company’s serious cashflow problems and failure to make itself financially sustainable. It says that In April 2015, ‘in an ill-judged and gullible move’, the Cabinet Office paid its whole £4.3m grant to Kids Company in one go, rather than quarterly as had previously been the case, because the charity showed a ‘willingness to make plans’, including looking at how it could reduce costs.

The then Cabinet Office accounting officer acknowledged that this ‘now looks like a naive thing for me to have done’, especially when it emerged that the numbers the Cabinet Office had based the £4.3m grant on were not accurate at the time the grant was made.

The charity went on to close abruptly in July this year after the government asked for the return of an additional £3m of emergency funding over concerns the money had been used to pay operational costs rather than being earmarked for governance and restructuring work. 

PAC’s inquiry did not have a remit to assess the outcomes of Kids Company’s work, but says MPs on the committee objected to the ‘obvious unfairness’ of central government directly funding a charity which operated in only two London boroughs for most of its existence, with around £4m a year, at the expense of other charities and young people across the country.

The report states: ‘Despite repeated warnings and concerns about Kids Company’s financial situation and the impact it was achieving, funding to the charity continued and was never seriously questioned, let alone stopped. Instead responsibilities were passed between departments like a hot potato.’

‘All the warning signs of a failed and expensive experiment had long been there but it was not until June 2015 that officials finally stood up to ministers, said enough was enough, and sought ministerial direction before providing more money.’

 PAC’s report recommends the government should undertake a fundamental review of how it makes direct and non-competitive grants to the voluntary sector to ensure grant making processes are fair and equitable.

The committee also wants the government to  develop a register of grants to the voluntary sector so that it can easily identify charities receiving large amounts of government funding from single or multiple sources; and share intelligence on charities’ past performance.

In addition, it wants the government to improve the way it monitors and evaluates the performance of grant-funded organisations and says if the government decides to use special powers to grant funding, it should provide a transparent case for its decision and report regularly on the use of these powers.

PAC’s report is available here

Sign up to our newsletter

If you would like to receive regular news alerts about breaking news and developments in tax, accounting and audit, sign up to receive our free newsletter here