The most senior civil servant in the Cabinet Office warned against providing a £3m grant to Kids Company because the charity was unlikely to meet its conditions, but was overruled by ministers, letters published today reveal.
Kids Company is a children's charity operating primarily in south London which has been the recipient of government grant funding for a number of years.
But in a letter dated 26 June 2015 and published yesterday, Richard Heaton, permanent secretary to the Cabinet Office and first parliamentary counsel - the civil service's most senior lawyer - said he had misgivings about awarding Kids Company more money.
He said those misgivings were so serious that if ministers awarded the grant he would report their actions to the National Audit Office.
The letter was addressed to Oliver Letwin, Chancellor of the Duchy of Lancaster and head of the department, and Matthew Hancock, Minister for the Cabinet Office.
They wrote back and said they planned to award the grant anyway.
Heaton warned that “to date [Kids Company] have not met the conditions they agreed to in April”, when the charity had been awarded a grant of more than £4m.
That grant had included a “number of conditions intended to encourage Kids Company to move to a more financially sustainable model", he said, but they had not been met.
Kids Company had asked for an additional £3m “to deliver a significant transformation and downsizing plan”.
But Heaton warned that: “The experience that this department has of the charity’s management and capacity gives me limited confidence that Kids Company will successfully implement the changes they describe in their new restructuring plan while meeting the stringent new conditions set out in the proposed new grant.
“It is therefore my judgement that the proposed additional £3m grant does not represent value for money,” he said.
Heaton told Letwin and Hancock that if they took a different view they would need to inform him in writing to release the grant.
He warned this would require him to alert the Comptroller and Auditor General at the National Audit Office, “who is likely to inform the Public Accounts Committee (which may choose to conduct an inquiry)”, and the Treasury Officer of Accounts.
In their response, dated 29 June, Lewtin and Hancock told Heaton to proceed with the grant.
“We are very mindful of the inspirational work that Kids Company does with young people, for which reason the government has contributed to it for several years," their letter said.
“We also take confidence from the changes that Kids Company has undertaken to make in terms of its leadership, management and governance, which we judge do give it a realistic prospect of long-term viability.”
Kids Company has said it will respond in detail to the correspondence early next week.
Earlier this month Camila Batmanghelidjh said she was stepping down as chief executive after a joint investigation by BBC Newsnight and Buzzfeed said that the Cabinet Office was withholding a £3m grant unless she stood aside.
She has said that moving into a clinical role and appointing a new chief executive has always been her intention. However she has not left the role at the current time.
The Charity Commission has said that it is in touch with the charity following media reports about its funding position.
It has also been revealed that in 2003 the government waived a £590,000 tax bill.
Since the publication of this story Kids Company has issued a statement saying that Batmanghelidjh is expected to step down by the end of October to become the charity's president. Read the full story here.
