Kids Company let off £600k tax bill

Kids Company former chairman and senior BBC executive Alan Yentob cited a letter he wrote to Dawn Primarolo in evidence to the first public session of the public administration and constitutional affairs committee’s inquiry into the financial management and leadership of Kids Company, which collapsed suddenly earlier this year.

Yentob said the letter, which he said related to a ‘£700,000 tax payment’, was sent in 2003 when the charity was under financial pressure and faced eviction from its original headquarters in Southwark.

Former Kids Company chief executive and founder Camila Batmanghelidjh went on to tell MPs at the Public Administration and Constitutional Affairs Committee that the charity had approached David Blunkett who had intervened with the Treasury to waive a PAYE tax bill of £580,000.

‘Southwark wanted to evict us from the railway arches, and at the time we were responsible for 400 of the most vulnerable children for whom there was no other provision. That’s why the government intervened – because it recognised we were providing what should be statutory services,’ Batmanghelidjh said.

Committee member Kate Hoey, the Labour MP for Vauxhall, asked how the writing off of the sum was reflected in the charity’s accounts. Batmanghelidjh said the amount was ‘conceptualised’ and seen as ‘a contribution to ensure the survival of Kids Company.’

Hoey also challenged Batmanghelidjh over claims that a list of payments made by Kids Company to clients in 2014 included sums of ‘£75,000, £59,000, £50,000, £20,000 and many more’, and said that some of the money was used to covered their mortgage payments. Batmanghelidjh said that in one case a client’s mortgage had been paid by the charity, and also admitted that payments had been sent to clients living overseas.

However, Yentob said that trustees had to be notified of any amount of other £5,000 spent. Batmanghelidjh said that clients were given a ‘living allowance’, which varied between £20 and £160 a week, but that this money was handed over in envelopes with a receipt and it was a ‘myth’ that young people were given large cash sums which could not be accounted for. She said ‘a few’ clients were given ‘expenditure’ of up to £70,000 a year, but denied claims that money was handed out ‘willy nilly’.

During a turbulent session which saw both witnesses and MPs raise their voices. MPs were highly critical of Kids Company’s failure to maintain adequate financial reserves. Yentob said: ‘Until 2014, there was no question about the financial resilience’ of the charity.

However, MPs pointed out that Kids Company’s own accounts recorded a deficit in the free reserves occurring in 2003, 2004, 2005, 2006, 2009, 2010, and 2011, which one suggested ‘indicated the financial fragility of the whole model on which the charity operated.’

While Kids Company reserves were £1.33m in 2012 but were reduced to around £400,000 immediately prior to its closure in August 2015. Yentob said this was because the charity became increasingly reliant on restricted funding, and ‘the problem with restricted funding is that the people who give it don’t want it left in the bank not being used.’ He also said that the charity had explored the option of using other assets, such as property worth £1.7m which it owned, to fund its reserves.

Batmanghelidjh said: ‘For 19 years the charity has been audited by government and we have had clean audits every year since 2002.’

Batmanghelidjh also said that the charity had wanted to call in KPMG to look at creating an economic model which would assess how much money the government saved as a result of Kids Company provided what should be statutory services.

Yentob told MPs that Kids Company was receiving £1m a year in 2003/04 from government funding, which he said rose to become £3m annually and in recent terms had averaged £4m to £4.2m a year.

The committee also had a heated discussion about the circumstances in July when the government made an emergency grant of £3m of funding to improve governance and the financial framework at Kids Company. MPs suggested that this funding had restrictions placed on it which meant it should not have been used to pay running costs, whereas Kids Company used £880,000 to meet that month’s staff salaries.

In her evidence, Batmanghelidjh said that the government was fully aware some of the funding would be used to cover payroll costs. She also claimed that under the arrangement, the government would give £3m to be matched by a philanthropist, while she was to raise £8m.

Batmanghelidjh told MPs, who expressed considerable surprise, that when she fell short by £350,000 of the sum needed, the Cabinet Office asked for written assurance that her flat could be used as security against the payment being made.

Throughout the session, both Batmanghelidjh and Yentob emphasised that Kids Company had been ‘audited many times’ and said the finance committee met 10 times a year. They also said that KPMG, along with Hogan Lovell, Deutsche Bank and other blue chip companies provided pro bono assistance, with Yentob claiming that: ‘I don’t think all of these organisations would have collaborated with Kids Company if it was all fraudulent.’