Children's charity Kids Company is reportedly set to close down its services on Wednesday evening amid concerns about its financial management.
The charity – which works with disadvantaged young people from the inner cities – was given a £3m bailout package from the government a week ago, but BBC Newsnight reports that it used the money to pay staff wages, which was against the terms of the funding.
Ministers are now said to be looking at how they can recover the rest of the money because conditions were not met.
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Last week the charity’s chief executive Camila Batmanghelidjh had to step down as a requirement for the charity to receive funding.
Local authorities, government officials and other charities are reported to have been briefed that the charity is set to close. However, Kids Company said speculation about its closure was "both dangerous and irresponsible and places the children we support at great risk”.
It emerged last month that ministers had backed the latest £3m grant to the charity in spite of concerns from Cabinet Office permanent secretary Richard Heaton that to do so would not represent value for money.