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Politicians lambast accounting firms over Kids Company collapse

MPs have slammed PwC, PKF Littlejohn and Kingston Smith for “a collective passing of the buck” at disgraced charity Kids Company before its ignominious collapse.

A trio of partners from the firms were grilled by MPs sitting on the Public Administration and Constitutional Affairs Committee as they gave evidence to the inquiry.

Committee chair, Bernard Jenkin MP, said: “I am not going to say that this is an Enron moment, but there has been a collective passing of the buck which I am rather uncomfortable with.”

Jenkin said all three firms missed the way Kids Company – once feted by celebrities such as rock group Coldplay, Harry Potter author JK Rowling and entrepreneur Richard Branson – operated a “high risk model” of spending nearly all of its funds on its clients.

PwC’s role began when it was appointed by the charity, to investigate a growing number of claims made against Kids Company over its cash management practices, while Kingston Smith had been the charity’s auditor for several years. PKF Littlejohn, meanwhile had conducted a report on behalf of the Cabinet Office last year into Kids Company’s governance and financial controls.

Nick Brooks, partner at Kingston Smith, said he believed his firm would have come close to refusing to sign off the numbers for the 2014 set of accounts, but the charity had already collapsed before it reached that tipping point.

He said he had not reported the charity to the Charity Commission in 2011, despite it not responding to an auditors’ letter full of recommendations as it was “not unusual” for charities to fail to responsd in such matters.

Brooks was adamant it was not the role of auditors to make “moral judgements” following Paul Flynn MP’s claim that having signed off the accounts, Kingston Smith had been “used to continue the abuse” of public money, which led to the charity’s end users being “badly let down”.

Meanwhile, PwC partner Will Richardson, said the Big Four firm’s report was an interim report derived from just three days’ work and that he was unaware that the charity intended to use the report as collateral for a bid to the Cabinet Office for more funding.

Jenkin accused PKF Littlejohn partner, Alastair Duke, and his firm of conducting the review with “your eyes wired shut”. Duke said that in examining the charity’s financial systems and governance it had specifically flagged cash flow and reserves as a problem.

Previously, auditors have revealed that failed charity Kids Company received at least £46m of public money over 15 years before it ultimately collapsed amid questions over the probity of its financial management.

Officials raised concerns about the charity’s cashflow and financial sustainability at least six times between 2002 and 2015 but the charity never reached a position where it was able to operate without government assistance, a report by the National Audit Office said.

 

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