Written evidence from the Cabinet Office (KCI 03)

PACAC COMMISSION FOR BACKGROUND INFORMATION IN RELATION TO THE INQUIRY INTO KIDS COMPANY

The Chairman of PACAC, Bernard Jenkin, has requested the Cabinet Office to supply the following factual information in respect of the above Inquiry.

Question 1: The conditions attached to the £4.25m grant from Cabinet Office in April 2015.  

Richard Heaton’s request for ministerial direction states that it “included a number of conditions intended to encourage Kids Company to move to a more financially sustainable model” and that, by June 2015, Kids Company had “not met the conditions that they agreed to in April.”   The Chairman would be grateful for clarification about what these original conditions were, and which conditions had not been met.

Please see Doc 14 attached (not published) - this lists out the conditions. The progress can be summarised as follows:

• Contingency plan - Only a high level summary of savings by department was ever received.
• End to end business review - KC prepared a scoping document for this review which we provided comprehensive feedback on. This was not taken forwards and the review was never started.
• Sharing management accounts and forecasts - Despite repeated requests, KC never shared this info.
• Develop, roll out and implement the measurement of value for money and impact - not delivered (however the grant covered the period April 2015 - March 2016).

Question 2: The conditions attached to the final £3m grant from Cabinet Office in June 2015.

In their response to the request for ministerial direction, Oliver Letwin and Matthew Hancock state that a “set of clear conditions” placed on the final £3m grant will “help to protect Government’s additional investment.” Please could Cabinet Office outline what these conditions were?

Please see Doc 20 attached (not published) - this lists out the conditions (not published).

Question 3: The delay in payment of the final grant

A series of linked emails between Camila Batmanghelidjh and her staff suggest that there were delays in the final £3m being released to the charity , supposedly because “We are waiting for exchanges between the government and the philanthropists and trustees to be completed.” Please could Cabinet Office explain why there was a delay in the money being released (and, if relevant, confirm which conditions of the grant had not been met), and why it was finally released?

There was a period of around a month between the Ministerial direction and the payment of the £3m grant. During this time we were:

• Reviewing the evidence of income which Kids Company had included in their revised cash flow
• Agreeing the details of the grant conditions with Kids Company and ensuring Kids Company provided evidence that they were committed to them

• Waiting for the preliminary findings from some allegations made by ex-employees of Kids Company which the Charity Commission were looking into

Once we were satisfied with the above three areas we transferred the payment.

Hours after the payment was made we were informed by the Charity Commission and the Kids Company interim CFO that allegations had been made to the Metropolitan Police regarding safeguarding.

Question 4: Attempts to reclaim the final grant

It has been reported that, at the time Kids Company closed, Government was attempting to reclaim the final grant, following concerns that the money was being used for day-to-day running costs, rather than restructuring the charity.  Can Cabinet Office confirm if it was indeed trying to reclaim the grant, and the reasons for this?

On Monday 3rd August Kids Company informed us that they would be declaring themselves insolvent and closing their doors later that week.

At this point it became evident that they would no longer be able to use the grant for the purpose intended, their income was seriously reduced and they would be the subject of an Insolvency Event. These factors constituted a breach of grant conditions and following Legal advice Cabinet Office officials wrote to Kids Company to inform that we would be terminating the £3m grant and seeking repayment of unspent funds. See Doc 32a (not published).

On Tuesday 18th August we wrote to Kids Company to terminate the £4.265m grant from April that year. See Doc 32b (not published).

It should be highlighted that these attempts to reclaim funds were made after Kids Company made the decision to close its doors and were not factors which contributed to their decision to shut down (as was sometimes incorrectly portrayed in the media).

Question 5: Attempts to reclaim the final grant

Has government been successful in re-couping any of the grant back from Kids Company?

We are still in discussions with the Official Receiver regarding retrieving the unspent funds.

PKF Littlejohn report

In 2014, the Cabinet Office commissioned PFK Littlejohn to conduct a report on Kids Company

(https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/455609/Kids_Company_Review_2014.pdf)

Under the heading 'Government grant' (on p.16) the report says: "The basis of reporting is based on generalised percentages across the charity's expenditure rather than direct costs incurred in fulfilling the grant agreement outputs. We understand this has been documented in submissions to the Cabinet Office."

The "generalised percentages" are not listed but I understand that this means that  itemised billing was not required, and that both Kids Company and the Cabinet Office were satisfied with this approach.

Question 6:

Please could Cabinet Office clarify the below:

·    What the agreed “generalised percentage” was?  

The “report” referred to in the PFK Littlejohn audit is a Financial Reconciliation Statement sent to the Cabinet Office to report on the 2013-15 grant, defined and set up by the Department for Education. The purpose of the Financial Reconciliation Statement is for organisations to confirm whether the money has been spent. In this instance, Kids Company provided additional information showing the breakdown of spend and “generalised percentages”.

The objective of the 2013-15 grant was to improve outcomes for children, young people and families alongside which there were a number of outputs. Alongside being reported to Cabinet Office by Kids Company each quarter, these outputs were monitored by an independent evaluator, Methods Consulting, to check they were met. Kids Company consistently exceeded these outputs.

However, these outputs were not delivered under a single  programme delivered by Kids Company, rather, staff were split across many areas, as were administration costs. Therefore, it would be extremely difficult  for Kids Company to define how much it cost to achieve these outcomes. Instead, Kids Company provided cost figures which were a percentage of the total cost for the entire organisation.

The funding from government made up 22% of Kids Company’s overall income, therefore costs were calculated at 22% of total costs (except for staff costs which were considered to be higher for this hard to reach target group therefore 30% was used).

Question 7

The report makes clear that September’s reported costs were estimated and based on an average of the previous two months (due to the timing of the report). How often did Kids Company report using estimations/averages rather than itemised breakdowns? Was there a formal policy/agreement on this?

There were other occasions where Kids Company provided estimates and generalised percentages. This was supplied by the Kids Company in addition to standard Financial Reconciliation Statement (FRS) (DfE format).

Grant reconciliations based on generalised percentages are not one of our reporting requirements.

Question 8:

Is reporting through generalised percentages consistently accepted by Cabinet Office for all charities in receipt of government grants, or are generalised percentages only accepted in certain cases (if the latter, please confirm the criteria for this)

It is normal process for organisations to submit Financial Reconciliation Statements to confirm whether the money has been spent. In this instance, Kids Company provided additional information showing the breakdown of spend and “generalised percentages”.

The outputs as defined in the 13-15 grant set up by the Department for Education were not delivered under a single  programme delivered by Kids Company, rather, staff were split across many areas, as were administration costs. Therefore, it would be extremely difficult for Kids Company to define how much it cost to achieve these outcomes. Instead, Kids Company provided cost figures which were a percentage of the total cost for the entire organisation.

Question 9:

We would also like to see the submissions referenced in the report, and any other relevant documentation that outlines Kids Company’s reporting obligations to Cabinet Office.

See Doc 39 attached (not published)- this is the original grant agreement set up by the Department for Education.

See Doc 41 attached (not published)- this is the Financial Reconciliation Statement referred to in the audit report.

Each quarter Kids Company submitted reports on the outputs agreed to in the grant agreement (see Doc 42 attached for a sample (not published)). These outputs were monitored by an independent evaluator, Methods Consulting, to check they were met. Kids Company consistently exceeded these outputs. (see Docs 40a, b & c attached for a sample (not published)).