Kids Company: Committee calls for overhaul of grant-funding system
13 November 2015
The Public Accounts Committee (PAC) sends a clear message to government over its relationship with Kids Company: This must never happen again. The Committee's report follows its short inquiry into public funding of the charity, which closed in August.
- Report: Closure of Kids Company (PDF 220 KB)
- Report: Closure of Kids Company
- Inquiry: Closure of Kids Company
- Public Accounts Committee
The Report describes as "staggering" the fact that government gave over £40 million to Kids Company over the past 13 years "and still has no idea what it was getting for taxpayers' money". It adds: "All the warning signs of a failed and expensive experiment had long been there."
The PAC concludes there was insufficient scrutiny of what Kids Company was delivering and, in treating the charity as a special case, government missed opportunities to help other children. Funding decisions were not based on evidence and Accounting Officers across government failed to stand up to ministers.
The Report says: "As the government recognises, there are lessons to be learned from its funding of Kids Company. This situation must never occur again."
Meg Hillier MP, Chair of the PAC, said:
"The case of Kids Company will anger many people. The charity was passed around Whitehall like a hot potato, with no one willing to call time on spending millions of tax pounds for uncertain outcomes.
The lack of scrutiny over its funding was staggering. Fairness and value for money – fundamental values when considering public spending - appear to have been forgotten in repeated and ultimately doomed attempts to keep Kids Company afloat.
Even after civil servants finally refused to agree additional funding, ministers ‘took a punt'. The final £3 million of public money was handed over just a week before Kids Company closed. Payments during the charity's final months alone totalled more than £7 million.
The faith that things would improve when they didn't was naïve. So many other charities did not get the same support and it is clear that Kids Company received special treatment – to the detriment of other deserving charities around the country."
It is staggering that the government has given over £40 million to Kids Company over the past 13 years and still has no idea what it was getting for taxpayers' money.
It was not part of this inquiry to assess the outcomes of Kids Company's work. We object 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 £4 million a year, at the expense of other charities and young people across the country.
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.
June 2015 before direction was sought
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. By then it was too late.
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.
Kids Company: history and background
Kids Company was set up in 1996 to enhance the emotional health of young people through counselling, support and art therapy; and to help schools, and other educational institutions address the emotional needs of young people.
Kids Company has received significant funding from the public purse - at least £42 million since 1996 from central government departments; and at least £4 million from local authorities and lottery bodies. The Department for Education oversaw grant funding for Kids Company until 2013, when the Cabinet Office took on the responsibility.
£3 million given for restructuring
After March 2013 government funding was through non-competitive, direct grant awards as Kids Company no longer met the criteria and quality standards for competitive grant funding schemes. In June 2015, the Cabinet Office advised ministers that a further grant to Kids Company would not be value for money. Despite this, ministers directed officials to pay £3 million, to support the restructuring of the charity and secure its long term sustainability.
The final £3 million was on top of an earlier grant of £4.3 million for 2015-16, which the Cabinet Office had already paid, in full, in April 2015. Payment was made just a week before Kids Company closed on 5 August. Kids Company was given £7.3 million within a period of 16 weeks.
Kids Company has so far passed 1,900 case files to local authorities and the Cabinet Office has given £200,000 to the authorities to support the transition of young people to other services.
Summary of conclusions
- By treating Kids Company as a special case the government missed opportunities to help other children. The C&AG's report shows that Kids Company regularly received significant sums of money from central government, far in excess of grants paid to other charities. Charities and young people across the country are likely to have lost out because of the special attention Kids Company received from successive governments.
- There was insufficient scrutiny of what Kids Company was delivering for taxpayers' money. Until 2013 the government relied heavily on Kids Company's own assessments of its performance. The Department for Education considered that very few people doubted the quality of Kids Company's achievements and that the charity's highly innovative work with extremely vulnerable people did provide value for money. But we are very sceptical on the charity's inflated claims about what it achieved.
- Government ignored Kids Company's serious cashflow problems and failure to make itself financially sustainable and continued to fund the charity to keep it afloat.
- Accounting Officers across government failed to stand up to ministers. Although in some circumstances ministers can decide which charities they wish to support and how to fund them, it is always the job of Accounting Officers to determine whether the support provided represents value for money for the taxpayer. Yet for many years Accounting Officers did not challenge whether decisions to fund Kids Company represented good value for money, and therefore did not seek a direction from ministers.
- Funding decisions were not based on evidence nor did they follow due process.
- It is particularly alarming that the Department carried on handing over money for years despite there never being a model that could be replicated across the country.
- The government failed to learn lessons from Kids Company until the end. Many government departments had a relationship with Kids Company but there appears to have been no knowledge-sharing about the charity across government, for example when the Department for Education transferred responsibility for the charity to the Cabinet Office. The government also failed to act on intelligence from local authorities.
As the government recognises, there are lessons to be learned from its funding of Kids Company. This situation must never occur again. To address these lessons we make the following recommendations:
1. The government should undertake a fundamental review of how it makes direct and non-competitive grants to the voluntary sector. The review should consider how:
- it ensures grant making processes are fair and equitable, for example, to properly assess geography and relative funding, so that no organisations are disadvantaged;
- it assesses the financial sustainability of a charity once the grant period finishes (and not just on the financial data included in the grant application); and
- when funding a charity that provides innovative services which have the potential to be replicated, it sets clear conditions for how and when this needs to happen;
- when a national charity is providing services with predominantly local characteristics, advice should be sought from local bodies working in that area to validate value for money.
2. The government should 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.
3. The government should improve the way it monitors and evaluates the performance of grant-funded organisations including looking at the balance between self-reporting and external evaluation. It should ensure that organisations have robust and transparent mechanisms in place for measuring their own performance.
4. The government should not provide or appear to provide funding commitments without referring the funding request to the appropriate funding department so that the requirements of HM Treasury's manual Managing Public Money are met.
5. 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.