The Cabinet Office applied "really heavyweight" conditions to Kids Company before granting it more public money, the department's former permanent secretary Richard Heaton has said, as he joined Department for Education perm sec Chris Wormald to defend the government's funding of the beleaguered charity.
The youth charity folded in August soon after receiving £3m in emergency funding from the Cabinet Office, the latest in a long line of public grants to the organisation.
A National Audit Office report published last week – and based on the government’s records of its funding of Kids Company – found that the charity had been given "at least" £42m in central government funding between 1996 and 2015, in spite of ongoing concern over the organisation's viability.
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Heaton – perm sec at the Cabinet Office until early July – sought a ministerial direction over the final £3m grant. The request for a direction – the relatively rare formal method by which perm secs can note their concerns over the value for money of a policy decision – was the first by any departmental accounting officer during the time the charity received public funding.
According to letters published on GOV.UK, Heaton – who cited "limited confidence" in the charity's "management and capacity" – was instructed to proceed with the £3m grant by ministers, who said they had agreed "strict conditions" with the charity to overhaul its governance. The department has since sought to reclaim £2.1m of that money.
The former Cabinet Office perm sec on Monday told MPs on the Public Accounts Committee that the charity had received "no special treatment at all" from government – but said he was "never totally comfortable" with an earlier round of funding for the charity.
Heaton acknowledged that Kids Company had been an "unusual charity", which was "well-networked to all sorts of people" and "well-liked politically".
But he said that officials at the Cabinet Office had been "nervous about the charity's financial controls and governance" when it took over responsibility for its funding from the Department for Education in 2013, bringing in an external firm – Methods Consulting – to review the organisation before telling the charity its funding would be tied to an outcomes model.
Prior to the final request for £3m in emergency funding, Kids Company received a government grant of £4.2m, which included a stipulation that it would be the last payment of the financial year and would encourage Kids Company "to move to a more financially sustainable model".
Heaton said that the £4.2m grant had been a "collective decision in government".
But he added: "We were really keen that if that was to happen we would need to go a considerable distance to get that within [Treasury public spending guidance document] 'Managing Public Money'. We absolutely had to nail the charity down to embedding a proper outcomes framework, building on the Methods Consulting work."
As well as the outcomes framework, Heaton said Cabinet Office officials had tied the £4.2m grant to Kids Company becoming "a financially sustainable charity" within six months.
Those were, he told MPs, "two really heavyweight conditions."
"We also were determined to send in a civil servant, sitting behind me, who did an excellent job in finding out what was actually happening on the ground and whether this was an organisation that was living up to the commitments it had given us," he added.
"So we were really keen to grapple with this one and to make sure that this charity didn't forever become a sort of endless receiver of government funds."
Heaton revealed that he had considered requesting a ministerial direction before the earlier £4.2m grant, discussing the issue with officials in his department – but had ultimately decided against it until the later "astonishing" request for a further £3m in funding.
He told Conservative MP David Mowat: "I'll be perfectly honest with the committee: I wasn't totally comfortable with it [...] It was an issue that I found a close call and quite a difficult one. But I thought we had sufficient evidence to suggest that this charity could be put onto a sustainable footing because of the indications and the capability that they were building."
Heaton added: "It wasn't an open and shut case and I did consider a direction but I chose that I didn't need one."
The NAO's report found that Kids Company had displayed a "consistent pattern of behaviour" before each round of new funding, with the watchdog saying the charity had lobbied ministers directly for funding when their requests were met by resistance from civil servants.
According to the spending watchdog, officials from the DfE and the Department for Work and Pensions (DWP) were seconded to Kids Company in 2011 to try and overhaul its governance arrangements. The NAO found that in 2008 Kids Company received 20% of all grant funding from the DfE, with the remainder shared between more than 40 other charities.
As the DfE's top official, Wormald said that while there were"big learning points" for his department from the Kids Company collapse, it had not given favourable treatment to the charity.
"Kids Company was a charity which ministers and the government collectively supported over many years – the prime minister said as much last week," the DfE perm sec said.
He added: "It's entirely proper for ministers to decide which charities in which sector they wish to support. Our job as officials was to make sure that any support ministers wish to give any charity – including Kids Company – was within 'Managing Public Money', and, once a decision was made, that it was properly implemented in a way that delivered value for the taxpayer. [There was] no special treatment at all. The fact that ministers chose this charity is on public record."
Committee chair Meg Hillier pressed Wormald on why money had been "repeatedly given" to the charity in light of the string of official concerns highlighted in the NAO's report.
The DfE perm sec said the warnings had been "one piece of the evidence on the table".
"There was also a lot of other evidence and a lot of other evidence of Kids Company doing important and highly valued work," Wormald added.
"I'm not going to say that every single one of those warnings was dealt with as well as it could have been – in particular there was one that the NAO picked up in 2005 which was not dealt with in the way that I hope it would be dealt with now.
"But – and I've discussed this with both of my two predecessors as accounting officer over that period – when you look at the weight of evidence that there was about Kids Company acting successfully which you set against some of the warnings that were made, I do think the decisions that were made across that period were reasonable in their own right."