The former charity Kids Company operated a “high risk business model”, according to a regulator’s report which said there was mismanagement and alleged that records were destroyed.
The Charity Commission (CC) said the celebrity-backed charity for vulnerable youngsters relied heavily on grants and donations from key fundraisers and donors, and its low reserves meant it was more vulnerable to external pressures.
It has made a formal finding of “mismanagement in the administration of the charity” over the failure to pay creditors, including its own workers, on time.
In response, founder Camila Batmanghelidjh has said she intends to seek a judicial review, calling the report a “corrupted attempt” to “justify its mistaken decision to conduct an investigation in the first place”.
The regulator’s report, concluding its inquiry launched in 2015, said trustees allowed spending to increase without a secure stream of income to cover increased costs or mitigate an unexpected fall in fundraising.
They should have acted sooner to improve financial stability, and a higher level of reserves could have allowed the charity to avoid liquidation or to merge with another charity when donors’ confidence was shaken, it added.
Kids Company supported vulnerable children and young people in London and Bristol, attracting a number of celebrity backers including former prime minister David Cameron Coldplay, artist Damien Hirst and comedian Michael McIntyre.
The charity was wound up in 2015. Its closure came shortly after police launched an investigation, which was dropped seven months later, into unfounded allegations of abuse and exploitation at the charity, following the broadcast of a BBC Newsnight report.
Last year, a bid to ban Ms Batmanghelidjh and seven ex-trustees from being company directors was rejected by a High Court judge.
Mrs Justice Falk said the public “need no protection from these trustees”, calling them a group of “highly impressive and dedicated individuals”.
The CC announced its inquiry into the charity in August 2015, and aspects were put on hold due to the High Court proceedings.
The charity’s repeated failure to pay creditors, including its own workers and HMRC, on time, was mismanagement
The regulator said it agrees with the High Court that there was no dishonesty, bad faith, or inappropriate personal gain in the charity’s operations.
It highlighted concerns about record keeping, alleging that some records were destroyed in the charity’s final days, while others were not created in the first place.
It said this fell “below the standards the commission would expect from a charity”.
It also said records show that the charity spent more than £311,000 on the top 25 beneficiaries of funds from January to July 2014 – the equivalent of more than £1,700 per recipient every month.
Ms Batmanghelidjh said these were the most vulnerable children and many could not access public funds.
Helen Stephenson, CC chief executive, said: “We found that the charity’s operations and finances made the charity, and by extension its beneficiaries, more vulnerable to decisions of individual grant-makers and donors.
“The charity’s repeated failure to pay creditors, including its own workers and HMRC, on time, was mismanagement.”
Ms Batmanghelidjh called the CC’s report a “travesty”, said it “ignores clear evidence” and has “invented findings”.
She said the charity’s financial difficulties arose from a “political smear campaign”, and that the commission “have not investigated what they should have”.
She said: “The report is an attempt to rewrite history. It presumptuously undermines the painstaking findings of the High Court which found that neither I, nor the Trustees of Kids Company, had committed any wrongdoing.
“Factually, it is a distortion to say that records were destroyed.
“Old paper records were shredded, actually whilst the BBC was filming, but those records were all either migrated onto Aurora our data collection system or on our computer.”
In a joint statement, former trustees – including the BBC’s ex-creative director Alan Yentob – said the High Court finding “made clear that there was no basis for concluding that there was mismanagement in the conduct of the charity’s affairs”.
They said: “After an investigation lasting over six years, the Charity Commission has not found anything that would warrant bringing regulatory action against anyone involved with Kids Company.
“We are pleased with that conclusion but disappointed that the Commission, in criticising some decisions we took, has chosen to discount the clear findings of the High Court that completely exonerated us.”
