Written evidence from the Cabinet Office (KCI 04)

Kids Company information for PACAC

Summary of funding provided to Kids Company

Successive governments have provided approximately £43m to Kids Company since 2005.

Factual overview of the Cabinet Office’s engagement with Kids Company 2013

Requests for funding for 2013/14 and 2014/15 were made to DfE.

Following Departmental discussions, a grant of £4m a year from Government to Kids Company was agreed by DfE for financial years 2013/14 and 2014/15 (one grant agreement covered this period). The following departments contributed to this grant:

• Department for Education
• Department for Communities and Local Government
• Department for Work and Pensions
• Department of Health

DfE can provide more information about this process if needed.

Attachment - 2013-15 grant agreement

In July 2013 the 2013 - 2015 grant agreement for Kids Company funding was transferred from DfE to Cabinet Office. Although the grant was novated in July, the funding did not transfer until the Spring Supplementary in February 2014, as such DfE remained accountable for authorising payments to Kids Company up to that point. All targets in this 2013-15 grant had been already defined by DfE and following open competition, an independent evaluator, Methods Consulting, had been appointed for the duration of the grant period by DfE to independently validate Kids Company’s delivery each quarter and support Kids Company with measuring their impact.

In recognition that it was not sustainable for Kids Company to keep looking to central government for funding, officials considered what could be done to enable them to make a stronger case to other public service commissioners. As such, officials worked with Methods Consulting to ensure that their programme of work had sufficient focus on supporting Kids Company to demonstrate value for money, both to central Government and others. Methods Consulting were required:

• To monitor the performance of Kids Company against the output measures set out in the grant;
• To develop an outcomes framework that Kids Company and any future funders could use to track the value-for-money and impact of the work that Kids Company were doing; and
• To build capacity / upskill / mentor Kids Company on ways in which they could better track and monitor the impact of their work.

Kids Company consistently exceeded the targets set in their DfE grant agreement. We have sent examples of these reports in previous submissions to PACAC.

In July 2013 Kids Company wrote to Nick Hurd (Minister for Civil Society)

Attachment - email from Camila to Nick Hurd (30 July)

In August 2013 Camila wrote to Nick Hurd (Minister for Civil Society)

Attachment - Camila letter to Nick Hurd and attachments and reply (14 Aug)

In September 2013 Kids Company wrote to Nick Hurd (Minister for Civil Society)

Attachment - email from Camila to Nick Hurd and attachments (3 September)

In September 2013, Government confirmed additional funding of £1m split across 2013/14 and 2014/15. This was specifically to deliver additional activities set out below, and the grant agreement was amended to reflect this additional work:

• 2013 / 14 - increasing the support given to young people (funding provided in Feb 2014)
• 2014 / 15 - delivering a summer residential and safeguarding programme (funding provided in May 2014)

In Oct 2013 Camila wrote to Nick Hurd (Minister for Civil Society)

Attachment - Camila email to Nick Hurd (14 Oct)

Attachment - Feb 2014 grant agreement

Attachment - May 2014 grant agreement

It was agreed at the time that the release of this funding would be contingent on Kids Company undergoing and passing an audit of their financial governance and controls. (More information about how this funding was released is set out below).

In November 2013 Camila wrote to Nick Hurd (Minister for Civil Society)

Attachment - Camila email to Nick Hurd (23 Nov)

In November, the Minister for Civil Society (Nick Hurd) requested an overview of local authorities’ engagement with Kids Company. Following a visit to Kids Company in October 2013, he wanted to understand how far Kids Company interacted and was integrated with other local organisations and youth services, particularly in light of Kids Company’s claims that they supported young people who should be accessing ‘statutory services’. The Minister was also keen to ensure there was no risk of ‘double funding’.

On 29th November 2013, Cabinet Office launched an ITT for an independent auditor to undertake a review of Financial and Governance controls at Kids Company. This was intended to provide assurance around Kids Company’s financial management and governance. Six bids were received and PKF Littlejohn were notified that they were successful on 20th December 2013.

Kids Company requested early payment of the £1m due to them in January 2014. This was approved.

In December 2013 Nick Hurd (Minister for Civil Society) wrote to Kids Company.

Attachment - MCS (Nick Hurd) letter to Kids Co

2014

PKF Littlejohn undertook the audit during January 2014. The report has been published on gov.uk here.

In January 2014 Nick Hurd (Minister for Civil Society) wrote to Kids Company.

Attachment - MCS (Nick Hurd) letter to Kids Co

In Feb 2014 Camila wrote to Nick Hurd (Minister for Civil Society)

Attachment - Camila email to Nick Hurd and reply (17 + 18 Feb)

In light of the audit finding no significant issues, in February 2014, approval was granted by Cabinet Office Approvals Board (chaired by Minister for the Cabinet Office -  Francis Maude) to provide Kids Company with the additional £250k for 2013/14 which was supplemented by £250k from DWP.

Further approval was granted to provide Kids Company with the additional £500k for 2014/15, entirely from the Cabinet Office budget.

In June 2014 Chris Grayling wrote to Oliver Letwin about Kids Company’s future funding.

Attachment - Chris Grayling letter to Oliver Letwin (13 June)

In June 2014 Camila wrote to Nick Hurd (Minister for Civil Society)

Attachment - Camila email to Nick Hurd (June)

In July 2014 Oliver met Kids Company where a request was made for funding for 2015/16. Camila followed the meeting with a letter to Oliver Letwin.

Attachment - Kids Company letter to Oliver Letwin (14 July)

Agreement was reached to secure funding from the following departments:

• Department for Education
• Department for Communities and Local Government
• Department for Work and Pensions
• Department of Health
• Cabinet Office

Conversations were then progressed with officials. This was the first time Cabinet Office was in a position to lead the decision making and negotiation around a grant to Kids Company. All previous grants Cabinet Office officials had managed with them had been transferred to Cabinet Office once in place and based on earlier agreements to which Cabinet Office officials had not been party.

Cabinet Office officials are aware of the following additional applications for funding to Cabinet Office: Kids Company application to the Social Action Fund in February 2012 (unsuccessful); Bristol Kids Company initial application to the Youth Engagement Fund in 2014 (unsuccessful).

In September Camila wrote to Oliver Letwin again and he sent a response.

Attachment - Camila email to Oliver Letwin, with his response (21 Sept).

In November Camila wrote to Oliver Letwin regarding media stories. Officials engaged the Charity Commission who informed them that it had addressed the concerns but decided no follow up action was needed.

Attachment - Camila email to Oliver Letwin (13 Nov).

Oliver Letwin met and then wrote to Kids Company on 22 December agreeing to offer a single fund of £4.265m for 2015/16.

Attachment - OL letter to Kids Co Dec 2014

2015

On 4 February 2015 Camila met with Nicky Morgan, Secretary of State for Education, and James Lupton to discuss Kids Company and its funding. No actions were agreed.

On 18 February 2015 Oliver Letwin met with Kids Company trustees.

Cabinet Office officials continued discussions with Kids Company about the terms of their funding for 2015/16.

In March 2015 Alan Yentob sent a letter to Number 10 from Camila to the Prime Minister and Chancellor which was dated October 2014. Cabinet Office officials had not seen this letter previously and doubt that it reached the Prime Minister as officials had never been asked to provide a response or comment (as would be the usual protocol).

Attachment - Camila letter to PM and Chancellor, Oct 2014

As part of the due diligence process for this new £4.265m grant, the Cabinet Office Finance Director undertook due diligence reviewing Kids Company’s financial position with the Chair of the Audit Committee (Richard Handover, Trustee (Former CEO of WH Smith)), the Head of Finance (Sachin Mevada) and Kids Company’s external auditors. He was satisfied but suggested a number of conditions to include in the grant intended to support Kids Company to move to a more financially sustainable position. The Cabinet Office agreed to pay the grant in April 2015.

Attachment - 2015/16 grant agreement

Delivery of the grant conditions were monitored by Cabinet Office officials. It started to become clear that whilst the Trustees were committed to substantial changes in their business model - they had said this to Oliver Letwin and indeed had signed up to such in the grant agreement - the change so far implemented by the organisation was more limited. To mitigate the risk of Kids Company not meeting the requirements in the grant agreement officials spent time supporting Kids Company and helping them to meet their conditions.

On 22 April, Kids Company sent Cabinet Office an outline of cost savings broken down by business area, but detailed contingency plans or information on how these cost savings would be delivered were never received. Similarly, Kids Company did not supply their management accounts or forecasts.

On 3 May, Kids Company sent an overview of their plans for an end to end business review. Cabinet Office officials provided feedback on this proposal.

On 19 May, Kids Company sent a report to Cabinet Office officials outlining their impact measurement work and progress they had made to date to meet the conditions in the grant agreement. This showed only limited progress and conversations between officials and Kids Company therefore continued, to increase momentum and drive more progress.

On 19 May, Alan Yentob wrote to DWP requesting additional funding. Oliver Letwin spoke to Alan Yentob on 22 May to inform him that the request would be declined.

Attachment - AY letter to DWP May 2015

On 2 June 2015 Kids Company sent a Restructuring Report to Cabinet Office officials.

Attachment - Restructuring Report

Attachment - Restructuring Report Appendix

On 3 June 2015 Kids Company sent a letter to Oliver Letwin outlining a more detailed restructuring plan and requesting additional £3m of funding from government.

Attachment - AY letter to Oliver Letwin June 2015

Attachment - Kids Co restructuring plans

This Kids Company transformation plan included the following changes:

• Reduce operating costs by 40% by Q4
• Closure of education programmes in London and Bristol
• Camila would be appointed President and assume an ambassadorial role
• Appointment of a new CEO
• Four new Trustees, including Stuart Roden (chairman of Lansdowne)
• Acknowledgement that this would be the last time they receive funding from Government

After reviewing the request, on 7 June Oliver Letwin called Stuart Roden to inform him that the further funding request was unlikely to be approved.

Kids Company then shared additional information with officials and met them several times.

On 17 June Alan Yentob wrote to Oliver Letwin.

Attachment - AY email to CO

Attachment - AY email to OL

On 18 June Camila wrote to Jeremy Hunt. Oliver Letwin also spoke to Alan Yentob on 18 June.

Attachment - Kids Co letter to Jeremy Hunt

On 19 June, Oliver Letwin met Stuart Roden.

After further interrogating the restructuring plans and reviewing the expected income that Kids Company forecast for the rest of FY 15/16, Cabinet Office officials advised Ministers not to provide this funding. However, Ministers took  a different view and provided a Ministerial direction to make the £3m payment. The Ministerial direction letters have been published on gov.uk here.

A number of structural and personnel changes, originally proposed by Kids Company themselves, were included as conditions in the grant agreement.

On 3 July the Charity Commission informed Cabinet Office officials of a number of allegations made by former Kids Company staff. PWC were appointed by Kids Company to independently review the allegations and produced a report of the preliminary findings. At the time   the Charity Commission had confirmed that they would not be undertaking an enquiry. However, they would continue to review the allegations and determine whether the payments that were made by the charity were a. legitimate expenditure and b. prudent.

Attachment - PWC preliminary findings

During July Kids Company submitted several iterations of their cash flow. Officials repeated their request for evidence of income. Oliver Letwin spoke to Stuart Roden on 17 July.

Stuart Roden wrote to Oliver Letwin on 20 July.

Attachment - letter from Stuart Roden to Oliver Letwin (20 July)

There was therefore a period of around a month between the Ministerial direction and the payment of the £3m grant. During this time officials 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 Ministers were satisfied with the above three areas the £3m was transferred on 30 July.

Later that day, the Charity Commission and then Kids Company informed officials of the Met Police allegations.

On 3 August Kids Company informed us that they would be declaring themselves insolvent and closing their doors later that week. Oliver Letwin spoke to Stuart Roden later that day.

Attachment - Kids Company email confirming that they will declare themselves insolvent

At this point it became evident that Kids Company 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 them that Cabinet Office would be terminating the £3m grant and seeking repayment of unspent funds.

Attachment - July grant termination letter

On 6 August DfE and CO officials met with local authorities and local charities about what additional services are required for children previously supported by Kids Company requiring low level support.

In parallel, Heads of Children’s Services from the relevant local authorities met with Kids Company to discuss how to transfer high risk cases.

On 7 August Kids Company closed their doors and formally announced the closure to their staff.

CO and DfE officials continued discussions with Local Authorities over the next few weeks whilst cases were transferred.

On 18 August officials wrote to Kids Company to terminate the £4.265m grant from April that year.

Attachment - April grant termination letter

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).

£200k was provided by Cabinet Office to Local Authorities in Lambeth, Southwark, Bristol and Camden to support them with the transition of Kids Company children to other services.

Conversations are ongoing with the Official Receiver regarding retrieving the remainder of the £3m funding.

October 2015