A tale of double counting at Kids Company?
Was Kids Company claiming that it was spending public funds on accommodation for some of its clients when, in truth, it was getting accommodation for free? That is an allegation that emerged on Tuesday from the Public Administration committee's dissection of an accountant's testimony about the now-closed youth work charity.
This is the same committee that gave Camila Batmanghelidjh, the charity's former chief executive, and Alan Yentob, the former chair and the BBC's creative director, a rough time last month. On Tuesday morning, they were holding a hearing with three accountants who had each looked into a part of the charity - and asked why these bean-counters had not blown any whistles before the collapse.
They are building up to a hearing on Thursday, when Oliver Letwin will be there to explain why it was that he had supported Kids Company's efforts to get public money from 2010 to this year. The Cabinet Office minister can expect a lot of questions about whether he acted as the prime minister's "human shield", as one minister put it. But the select committee's investigation into the charity which received £47m in public money before it collapsed in a heap in August is still going.
One of the most striking exchanges on Tuesday was built around a concern that was briefly raised in an internal report that had been completed for the civil service on Kids Company in March 2014. The report was written by PKF Littlejohn, an accountancy company, and commissioned by the Cabinet Office - Mr Letwin's department - to set officials' minds at rest about the charity.
The report was broadly positive and the grants kept coming. But the committee found one rather startling fact in the detail. To prepare that document, the accountants had reviewed one of the charity's quarterly reports to the Cabinet Office on how it was spending their money. They looked at a single return which covered the quarter ending in September 2013.
They noted that "the calculation of accommodation costs includes gifts in kind, which is not a cash transaction and should therefore be excluded". In rather less dry language, the charity seemed to be reporting to the government that it was spending public money on accommodation. Instead, though, it was getting it for free - and the money seems to have gone elsewhere.
The committee inquired as to how much money it was: the accountants said the equivalent of £420,000 a year appears to have been double-counted in this way. So if this practice had been going on for much time, it would mean that the Cabinet Office and the Department for Education would not have been able to accurately account for the use of a substantial amount of public money that had been paid to the south London charity.
Oliver Dowden, a Conservative MP on the committee, asked: "So do you accept that did amount to an overcharging...? They still were, as it were, billing it as an expense to the government?" Bernard Jenkin, the committee chair, went further: "If you found that happening in a company, that was affecting the tax payment of that company, wouldn't that be fraud?"
Asked whether the claim was dishonest, Alastair Duke, a partner at PKF Littlejohn, said: "That's something you'd have to ask the preparer of the accounts. I don't know if that was an oversight." Mr Duke also told the hearing he would write to the committee with a "better explanation" for the claim and whether it could have affected the overall figures.
Kids Company's former leaders have been asked to comment on this issue. But this is also a problem for Mr Letwin: the select committee's clerks spotted the import of that little line in the PKF Littlejohn report and followed it up. But did he, or did the Cabinet Office? And how did they respond?
Local government relations
Tuesday's hearing also let a slightly bizarre sub-plot in the Kids Company saga burst out into public view: the charity's leadership has long expressed withering scorn about London's local government.
Sue Berelowitz, former deputy children's commissioner, told the committee: "I never encountered the degree of hostility by a charity towards local authorities as I encountered over the years... in Kids Company."
She recounted a story which, she said, she heard from Ms Batmangheilidjh: "One of the local authorities in which they worked had taken out injunctions to prevent them accessing particular children... My understanding is it was Southwark."
The council has checked its records, and says this never happened. One senior council official responded more quickly and less thoroughly: "rubbish", he said. This afternoon, Ms Batmangheilidjh denied that she has ever said Southwark took out an injunction.
In her testimony, Ms Berelowitz also said that on four visits to Kids Company facilities, she saw few clients. She said: "We heard that they never turned a child away - and if you look at the figures it was 36,000, but what I saw was very, very few children using their service. I came away with quite a degree of disquiet about that."
This has been a live discussion point since the charity closed. On the day it shut its doors, Ms Batmangheilidjh had claimed it had been helping 15,933 people intensively. When local authorities asked, however, the charity was only able to produce the names of 1,700 London clients.
The charity's staff have sent through further evidence to explain the discrepancy, which has also been published by the committee. There is no way to reconcile the figures - and there are major contradictions between accounts given by the charity's senior staff since August.
Yet Ms Berelowitz's testimony is yet another piece of evidence in favour of the simplest solution to this puzzle: Kids Company's claims about client-load look exaggerated. And if Ms Berelowitz's suspicions were raised by relatively few visits, it raises a question that you can expect to hear in various forms on Thursday when these MPs quiz Mr Letwin: "How did the Cabinet Office miss this?"
Chris Cook is Policy editor for BBC Newsnight
More by Chris Cook
- The fall of Kids Company (12 November 2015)
- Kids Company concerns raised as early as 2002 (14 October)
- Kids Company - do the sums add up? (20 October)
- How Kids Company 'bullied' ministers into funding them (29 October)
- Kids Company: Ministers had report on charity's spending (30 October)