Audit – too narrow a tool for effective financial oversight of Kids Company

A TRIO of senior UK accountancy professionals faced rigorous questioning over their work as MPs looked into the financial probity of disgraced charity Kids Company.

Work undertaken by PwC, PKF Littlejohn and Kingston Smith was put under the microscope during a heated session of the Public Administration and Constitutional Affairs Committee on Tuesday as it probed the financial oversight work into the charity that collapsed earlier this year after netting over £46m in public money in 13 years despite growing concerns over its management.

Paul Flynn MP, speaking to Alastair Duke, PKF Littlejohn’s not-for-profit and charity partner, said the firm had simply taken part in a managerial romp through the books and that their work “tells us nothing”.

Duke explained that his firm had been engaged in January 2014 with a “clear restricted and focused remit” to conduct a review into the governance and financial controls before reporting those findings to its commissioning client, the Cabinet Office.

He said the government department wanted it to look at cash flow and cash reserve issues, which PKF went on to identify as a key financial risk in its subsequent report.

“We looked at the internal controls and they were as one would expect of a charity of this size but that “good controls can be overridden”.

In the 100 hours spent looking into the charity’s finances – and within its specific remit – the firm flagged Kids Company’s cash reserves as a key financial risk and duly highlighted in the report.

The committee highlighted how Kids Company was claiming for accommodation costs of over £420,000 for the year, despite them being a gift in kind. Duke said he had highlighted in his report that “that cost should be removed from the calculations submitted”. He vowed to write to the committee on that point to give further explanation.

Specific allegations

Meanwhile, Will Richardson, a partner at PwC’s forensic services team, explained that his firm had been engaged to look at specific allegations and that a team of five staff over three days, and 100 hours had done so, poring over 1,000 documents in the process. It did not serve as Kids Company’s auditors.

Among those allegations, he told the committee, was that an employee had been awarded a pay rise in lieu of not getting a promotion, which was not found to be true.

Others included a beneficiary also being paid as an employee, and that the charity was paying the education and accommodation costs of an individual so that the individual could obtain a student visa and that there was a connection between that person and Kids Company founder Camilla Batmanghelidjh.

Richardson said his team had “covered off one allegation” and “made inroads into four others”.

When asked if he felt PwC’s investigations were “suitably vigorous” he said “we did a very good job with a very good team in a very short time” and that he was “very proud”.

He said the team had “checked the documentation trial” and would have reviewed clinical assessments documents if asked to in a second phase.

And it was clear that the firms’ narrow interpretation of their albeit narrow briefs, was a source of frustration to the committee’s politicians.

PwC’s £26,300 report was badged as “being used as propaganda to get more money out of the taxpayer that should not have been paid”, on the basis that the charity received another £4m in funding shortly after it was published.

Richardson countered that he was brought in to “answer a very specific piece of work”.

Among the areas which were not investigated as they “would form phase two” of the probe were £305 spendt on designer shoes and £4,700 on clothes for one client, which “at face value seemed high but didn’t get onto full investigation”.

An unorthodox charity

Nick Brooks, partner at Kingston Smith, who were the charity’s official auditors, cited the somewhat unusual example of money being paid out for a boxing course that the therapist felt would help the individual with their issues.

Brooks said that Kids Company was “an unorthodox charity” and it was “not up to us auditors to query” the decisions of the therapist in such circumstances – that was up to the organisation and management” to “assess its appropriateness”.

He went on to say that he was satisfied on all occasions that in all the years the firm had worked with the charity, there were “no significant deficiencies in internal controls to be identified”.

Brooks added that the responsibility for signing the accounts lay firstly with the trustees and that it was important that they could satisfy themselves that the organisation can survive for the next 12 months.

“My judgment was that they would survive for over 12 months and they survived for over ten months”, which he put down to the funding streams, but the “nail in the coffin – which was out of our hands – was down to the sexual abuse allegations from the press” a situation he understood the trustees – who included Alan Yentob – thought “would curtail any future funding”.

Former deputy children’s commissioner Sue Berelowitz, in her evidence to the committee highlighted the acute need for expert professional assessments of charities.

She said this was something that would be far better suited to monitoring and challenging the real charitable value of organisation, as an audit, no matter how professionally completed, was not the most appropriate tool for the job.

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