The former Kids Company charity operated a “high-risk business model”, according to a regulator’s report which said there had been mismanagement and alleged records had been destroyed.
The Charity Commission (CC) said the celebrity-backed charity for vulnerable young people was heavily dependent on grants and donations from major fundraisers and donors, and its low reserves made it more vulnerable to outside pressure.
He formally found “mismanagement in the administration of the charity” for the failure to pay creditors, including his own employees, on time.
In response, founder Camila Batmanghelidjh said she intended to seek judicial review, calling the report a “corrupt attempt” to “justify her mistaken decision to investigate in the first place”.
The regulator’s report, concluding its investigation launched in 2015, said administrators allowed spending to rise without a secure revenue stream to cover rising costs or mitigate an unexpected drop in fundraising.
They should have acted sooner to improve financial stability, and a higher level of reserves might have allowed the charity to avoid liquidation or merge with another charity when donor confidence was shaken, he added.
Kids Company has supported vulnerable children and young people in London and Bristol, attracting a number of celebrity supporters including former Prime Minister David Cameron Coldplay, artist Damien Hirst and comedian Michael McIntyre.
The charity was disbanded in 2015. Its closure came shortly after police launched an investigation, which was dropped seven months later, into unsubstantiated allegations of abuse and exploitation within of the charity, following the broadcast of a BBC Newsnight report.
Last year a bid to bar Ms Batmanghelidjh and seven former directors from being company directors was rejected by a High Court judge.
Mrs Justice Falk said the public “needs no protection from these administrators”, calling them a group of “very impressive and dedicated individuals”.
The CC announced its investigation into the charity in August 2015, and some aspects have been put on hold due to High Court proceedings.
The regulator said it agreed with the High Court that there was no dishonesty, bad faith or improper personal gain in the charity’s operations.
He highlighted concerns over record keeping, alleging some records were destroyed in the charity’s final days, while others weren’t created in the first place.
He said it was ‘below the standards the commission would expect of a charity’.
He also said records show the charity spent more than £311,000 on the top 25 fund recipients from January to July 2014, the equivalent of more than £1,700 per recipient each month.
Ms Batmanghelidjh said these were the most vulnerable children and many did not have access to public funds.
Helen Stephenson, CC’s Chief Executive, said: “We found that the charity’s operations and finances made the charity, and by extension its beneficiaries, more vulnerable to the decisions of funders and individual donors.
“The charity’s repeated failure to pay its creditors, including its own employees and HMRC, on time was mismanagement.”
Ms Batmanghelidjh called the CC’s report a ‘travesty’, said it ‘ignored clear evidence’ and had ‘made up conclusions’.
She said the charity’s financial difficulties resulted from a “political smear campaign” and that the commission “did not investigate what it should have”.
She said: “The report is an attempt to rewrite history. This presumptuously undermines the careful findings of the High Court which concluded that neither I nor the directors of Kids Company had committed any wrongdoing.
“In fact, it is a distortion to say that the files have been destroyed.
“Old paper recordings were shredded, actually while the BBC was filming, but these recordings were all migrated to Aurora, our data collection system, or on our computer.”
In a joint statement, former directors – including former BBC creative director Alan Yentob – said the High Court ruling “made it clear that there was no basis for concluding that there is had been mismanaged in the conduct of the affairs of the charity”.
They said: “After more than six years of investigation, the Charity Commission has found nothing to warrant taking regulatory action against anyone involved with Kids Company.
“We are pleased with this conclusion but disappointed that the Commission, in criticizing certain decisions we have taken, has chosen to disregard the clear findings of the High Court which have completely exonerated us.”