The public spending watchdog is to investigate a decision to proceed with a £3m government grant to the Kids Company charity in spite of concerns raised by the then-Cabinet Office permanent secretary Richard Heaton.
The charity – which worked to support vulnerable inner-city children and was funded through a mixture of government grants and private donations – closed in August after becoming insolvent.
Letters published in July show that Heaton (pictured) sought a rare ministerial direction over the latest proposed grant, writing to Cabinet Office ministers Matt Hancock and Oliver Letwin to say he had "limited confidence" in the charity's "management and capacity".
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Hancock and Letwin told Heaton to proceed with the grant, citing "clear conditions" that would be placed on the fresh funding.
"We also take confidence from the changes that Kids Company has undertaken to make in terms of its leadership, management and governance, which we judge do give it a realistic prospect of long-term viability so it can continue to deliver for vulnerable young people," they wrote.
In a brief statement issued on Thursday, the National Audit Office said it would investigate the funding that the charity received from government over the past decade, the grounds for providing that funding, and the way those grants were then monitored. The watchdog says its findings will be published in the autumn.
When a permanent secretary seeks a ministerial direction from ministers, that correspondence is forwarded to the NAO as well as MPs on the public accounts committee for further scrutiny.
Heaton has since moved to become perm sec at the Ministry of Justice, stepping into the shoes vacated by the retirement of Ursula Brennan.