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| Kids Company trustees accused of ignoring warnings over finances | Kids Company trustees accused of ignoring warnings over finances |
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| Senior directors at the charity Kids Company repeatedly warned trustees of the need to build up reserves or face going to the wall, the Guardian can reveal, as an analysis of the accounts show its funding increased by more than 75% in five years. | |
| Two finance directors at Kids Company left in less than three years because of their frustrations that no one – from the board of trustees, led by the BBC’s Alan Yentob, to the chief executive Camila Batmanghelidjh – heeded warnings of the need to build a financial cushion to protect the charity from catastrophe, the Guardian understands. | Two finance directors at Kids Company left in less than three years because of their frustrations that no one – from the board of trustees, led by the BBC’s Alan Yentob, to the chief executive Camila Batmanghelidjh – heeded warnings of the need to build a financial cushion to protect the charity from catastrophe, the Guardian understands. |
| “If you keep building an organisation without building reserves then it’s a house of cards and it will fall down,” said one source who worked in a senior role at the charity for several years. | “If you keep building an organisation without building reserves then it’s a house of cards and it will fall down,” said one source who worked in a senior role at the charity for several years. |
| They went on: “The trustees are the people who run the organisation, if the trustees say you cannot turn any kids away – and that has always been the ethos from Camila down – you cannot build up reserves,” the source said. “The trustees could very easily have said you are not allowed to spend this.” | They went on: “The trustees are the people who run the organisation, if the trustees say you cannot turn any kids away – and that has always been the ethos from Camila down – you cannot build up reserves,” the source said. “The trustees could very easily have said you are not allowed to spend this.” |
| Guardian analysis of five years of accounts show how the charity got itself into dire financial straits. Despite receiving millions of pounds in government funding it lived hand to mouth, never built up any reserves, and spent almost all its income each year. | Guardian analysis of five years of accounts show how the charity got itself into dire financial straits. Despite receiving millions of pounds in government funding it lived hand to mouth, never built up any reserves, and spent almost all its income each year. |
| “Kids Company didn’t have any reserves, the government knew they didn’t have any reserves, and they bailed them out time and again. The charity, the trustees got complacent, they got into this habit, they knew they would always get bailed out,” said the source. | “Kids Company didn’t have any reserves, the government knew they didn’t have any reserves, and they bailed them out time and again. The charity, the trustees got complacent, they got into this habit, they knew they would always get bailed out,” said the source. |
| Analysis of the charity’s accounts from 2009 to 2013 shows the organisation was receiving huge injections of funding, which included millions of pounds in government grants. Between 2009 and 2013 its income increased by 77% from £13m to £23m, but the charity was spending almost every penny it brought in. In the same period its outgoings increased by 72%. | Analysis of the charity’s accounts from 2009 to 2013 shows the organisation was receiving huge injections of funding, which included millions of pounds in government grants. Between 2009 and 2013 its income increased by 77% from £13m to £23m, but the charity was spending almost every penny it brought in. In the same period its outgoings increased by 72%. |
| Senior management also took pay increases over the past few years. In 2009 the top paid employee was paid between £60,000 and £70,000. However by 2013 the top paid employee in the charity was receiving between £90,000 and £100,000, while another employee was paid between £70,000 and £80,000. | Senior management also took pay increases over the past few years. In 2009 the top paid employee was paid between £60,000 and £70,000. However by 2013 the top paid employee in the charity was receiving between £90,000 and £100,000, while another employee was paid between £70,000 and £80,000. |
| Despite repeated warnings on the accounts seen by trustees and presented to the Charity Commission no consistent reserve was built up. | Despite repeated warnings on the accounts seen by trustees and presented to the Charity Commission no consistent reserve was built up. |
| In 2009 the charity’s annual report showed its reserves were in debt by £127,000. | In 2009 the charity’s annual report showed its reserves were in debt by £127,000. |
| The charity’s answer was to build up reserves to the equivalent of three months’ running costs the following year. | The charity’s answer was to build up reserves to the equivalent of three months’ running costs the following year. |
| Warning notes on the accounts state that the charity’s lack of endowed funds and reliance on securing continuing grant income had “often put a strain on thecharity’s cash flow”. The trustees promised they were “confident sufficient funding will be secured and are monitoring the situation.”. | Warning notes on the accounts state that the charity’s lack of endowed funds and reliance on securing continuing grant income had “often put a strain on thecharity’s cash flow”. The trustees promised they were “confident sufficient funding will be secured and are monitoring the situation.”. |
| But again in 2010 the charity trustees were warned “the organisation continues to grow very fast, and has low reserves relative to its size”. Again the trustees said they would secure sufficient funding to build a financial backstop, but the same pattern continued in 2011, 2012 and 2013, and financial reserves were never built up. | But again in 2010 the charity trustees were warned “the organisation continues to grow very fast, and has low reserves relative to its size”. Again the trustees said they would secure sufficient funding to build a financial backstop, but the same pattern continued in 2011, 2012 and 2013, and financial reserves were never built up. |
| As funding for Kids Company increased, so too did the number of children under its care. In 2009 the charity cared for 14,000 children. This rose to 36,000 by 2013. | As funding for Kids Company increased, so too did the number of children under its care. In 2009 the charity cared for 14,000 children. This rose to 36,000 by 2013. |
| To account for the growth in children under care in the same period the number of average weekly full-time employees increased from 231 to 495. The biggest increase in employees came from running the growing number of centres set up by the charity. However costs for youth workers, therapists, practice teachers and special project workers remained low, only increasing 26% in the same period. | To account for the growth in children under care in the same period the number of average weekly full-time employees increased from 231 to 495. The biggest increase in employees came from running the growing number of centres set up by the charity. However costs for youth workers, therapists, practice teachers and special project workers remained low, only increasing 26% in the same period. |
| In March 2014 an audit of the charity was commissioned by the Cabinet Office and carried out out by accountancy firm PKF Littlejohn. It noted that the charity was facing a “serious cashflow” issue. The auditors also made clear that Kids Company’s cashflow was the main risk to the group and said, “without improving the cash position of the charity it is not possible to build reserves and invest in new activities and locations”. | In March 2014 an audit of the charity was commissioned by the Cabinet Office and carried out out by accountancy firm PKF Littlejohn. It noted that the charity was facing a “serious cashflow” issue. The auditors also made clear that Kids Company’s cashflow was the main risk to the group and said, “without improving the cash position of the charity it is not possible to build reserves and invest in new activities and locations”. |
| On Thursday the Cabinet office held an urgent meeting in south London with members of Kids Company, and other charities in the sector to try to organise support for thousands of at-risk children – many of whom are not registered with any other agency. | |
| Pressure grew on Yentob, the chair of trustees at Kids Company for 18 years, to explain how an organisation once feted by celebrities, politicians and the media, had been forced to close, after years in which its funding stream had increased. | Pressure grew on Yentob, the chair of trustees at Kids Company for 18 years, to explain how an organisation once feted by celebrities, politicians and the media, had been forced to close, after years in which its funding stream had increased. |
| Kids Company is not the only troubled charitable organisation over which Yentob has presided. He was chairman of the Institute of Contemporary Arts from 2002 until 2010 during a turbulent period at the organisation which almost ended in its closure. | Kids Company is not the only troubled charitable organisation over which Yentob has presided. He was chairman of the Institute of Contemporary Arts from 2002 until 2010 during a turbulent period at the organisation which almost ended in its closure. |
| Yentob refused to comment following the closure this week. Batmanghelidjh told the BBC that some people in government wanted the charity to “disappear” and there had been a “malicious discrediting campaign”. | Yentob refused to comment following the closure this week. Batmanghelidjh told the BBC that some people in government wanted the charity to “disappear” and there had been a “malicious discrediting campaign”. |
| The Charity Commission’s guidance to all charities on reserves states: “Deciding the level of reserves that a charity needs to hold is an important part of financial management and forward financial planning … if reserves are too low then the charity’s solvency and its future activities can be put at risk.” | The Charity Commission’s guidance to all charities on reserves states: “Deciding the level of reserves that a charity needs to hold is an important part of financial management and forward financial planning … if reserves are too low then the charity’s solvency and its future activities can be put at risk.” |
| The senior source who spoke to the Guardian said Kids Company had an ethos that the money which came in should be spent on the children in need. That came from Batmanghelidjh and was not questioned by trustees. | The senior source who spoke to the Guardian said Kids Company had an ethos that the money which came in should be spent on the children in need. That came from Batmanghelidjh and was not questioned by trustees. |
| “Some large charities operate with reserves of £20m, but Kids Company felt it didn’t want to have £1m in reserve while children needed help, that was the ethos. But there is always a balance to be struck.” | “Some large charities operate with reserves of £20m, but Kids Company felt it didn’t want to have £1m in reserve while children needed help, that was the ethos. But there is always a balance to be struck.” |
| Margaret Windram, of the legal firm Thomas Eggar, said trustees of a charity had a duty to act in the interests of the charity. | Margaret Windram, of the legal firm Thomas Eggar, said trustees of a charity had a duty to act in the interests of the charity. |
| “Charity trustees should take advice on their duties and responsibilities, as well as financial good practice. They should bring in trustees with the necessary skills to help with governance to keep everything on a sound, financial footing. This will ensure that the charitable purposes for which the charity was founded can be kept going,” Windram said. | “Charity trustees should take advice on their duties and responsibilities, as well as financial good practice. They should bring in trustees with the necessary skills to help with governance to keep everything on a sound, financial footing. This will ensure that the charitable purposes for which the charity was founded can be kept going,” Windram said. |