Cashflow issues shut Kids Company

The charity Kids Company has shut down after becoming mired in financial difficulties following the withdrawal of a £3m government grant over concerns that the funding was not being used for the purposes intended

In a statement on its website Kids Company, which has been in operation for 19 years, said it ‘has been forced to close as a result of the fact that it is unable to pay its debts as they fall due.

A winding up petition will be issued and the charity will be placed into compulsory liquidation after a court hearing in due course.’

Last month the government, which has provided £37m in grants to the charity since 2005, said it would not provide further funding unless founder Camila Batmanghelidjh stepped down from day-to-day control and took up an advisory position.

The latest annual accounts for year end 2013 show that the charity had total income of £23,104,012 in financial year 2013, with spending of £22,963,671. 

In early 2014, the Cabinet Office called in accounting and audit firm PKF Littlejohn to review governance at the charity and at the time the firm's report highlighted cashflow issues and recommended tightening up some reporting procedures for management accounting. 

The report stated that 'both strategy and business planning are appropriately managed, however this must be considered in light of the serious cashflow position that the charity finds itself in'. It goes on to warn: 'It is clear from our work that the main financial risk to the organisation is cashflow'.

The latest 2013 year end annual accounts audited by Kingston Smith LLP do highlight cashflow issues and the auditor's report states that the accounts 'give a true and fair view of the state of the group’s and the charitable company’s affairs as at 31 December 2013 and of its incoming resources and application of resources, including its income and expenditure, for the year then ended'.

Cashflow is highlighted as a going concern issue in the annual report, which states: 'As the charity has no endowed funds, the level of activities in the financial year starting 1 January 2014 will depend almost entirely on its ability to secure continuing grant income. Whilst significant grants have been awarded, the organisation continues to grow very fast, and has low reserves relative to its size. The Charity’s history of delivering the maximum possible charitable objectives with the resources available has often put a strain on the charity’s cash flow. The Trustees are confident sufficient funding will be secured and are monitoring the situation. The Trustees consider that debts will continue to be paid as they fall due.'

The closure announcement follows a £3m grant payment made earlier this week specifically to fund transformation and governance work at the charity. The government is now seeking the return of the money, saying it has evidence that some of it was used to pay £800,000 of staff salaries via the monthly payroll, in breach of the conditions under which it was given.

Batmanghelidjh has disputed this allegation, claiming that there was an email discussion between Kids Company’s interim restructuring finance director and the Cabinet Office over the use of the money to pay salaries.

Kids Company says that as a result of the government decision, and the earlier announcement of a police investigation into alleged child protection issues at the charity, a private donor has withdrawn a matching offer of £3m in funding.

In its statement Kids Company said: ‘Despite the heroic efforts of a group of philanthropists, and the promise of restructuring support from the government, there was not enough income from other sources for the charity to continue.

Addressing claims of possible mismanagement, 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.’

The charity’s 11 street level centres in London and Bristol and its outreach project in Liverpool will close immediately and its work with over 40 schools in London and Bristol will also come to an end. Its 650 staff have been told not to come to work.

A government spokesperson said: ‘The government has supported Kids Company over the last seven years to help it deliver services for vulnerable young people and so we are disappointed it has been unable to move to a sustainable financial position.

‘The welfare of these young people continues to be our primary concern and we are now working closely with local authorities to make sure they have access to the services they require.’

The Charity Commission said it had met  the trustees of Kids Company last month to discuss the concerns in the public domain about the charity’s funding, financial stability and proposed governance changes.

In a statement the regulator said: ‘We were subsequently contacted by former employees of the charity and met them on 16 July to discuss specific concerns about alleged inappropriate spending, breaches of financial controls and concerns about the viability of the organisation.

‘We notified the charity of the complaints on 17 July and met with charity representatives on 21 July. At that meeting we insisted on a number of steps being taken, including that, under the oversight of the commission, the charity instigate an immediate independent examination into the specific allegations made.’

According to the commission, the trustees had agreed to this, having  already put in place changes to the governance, management of and existing financial controls within the charity. The commission said it would be making immediate contact with the receiver when appointed to review this.

The executive summary of the PKF Littlejohn governance report is available AuditorsReport Kids Co PKFL 032014.pdf

The Kids Company Annual Report and Accounts year ending 31 December 2013 is available Kids company Annual_Report_2013.compressed.pdf

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