Kids Company's auditors missed the "fundamental risk" in the charity's business model that meant the charity collapsed at the first hint of reputational trouble, the MP chairing a parliamentary inquiry into the charity's relationship with Whitehall has said.
At an evidence session in parliament yesterday, Bernard Jenkin, the Conservative MP who chairs the Public Administration and Constitutional Affairs Committee, told Nick Brooks, a partner at Kingston Smith, which audited the charity's accounts for several years, that he and the other auditors giving evidence to the inquiry should have considered their responsibility to the Charity Commission more seriously and told the regulator when they saw warning signs in the charity's finances and governance.
"The auditors missed this fundamental risk and should have considered their responsibility more seriously," said Jenkin. "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."
The evidence session was the latest part of the committee’s inquiry into Kids Company’s relationship with successive governments, which resulted in the charity being granted more than £42m of central government funds over the past 13 years.
The Labour MP Paul Flynn said it seemed as if the auditors had been called in by Kids Company to act as a "human shield" for the charity.
He said that much of the charity's work was damaging and let down the children it was supposed to serve.
Brooks responded that it was not for auditors to make moral judgements.
Asked by Flynn how he felt about his work being used to continue an abuse of public funding that allowed children to suffer, Brooks said: "I'm not sure I have an answer."
But he was commended by Jenkin for appearing more willing to accept responsibility for the charity's failing than the other auditors interviewed by the committee.
Asked if he was concerned by Kids Company's failure to respond to a letter Kingston Smith had sent in 2011 highlighting several changes the charity should make to its financial processes, Brooks said that many charities did not respond to such letters.
He said the firm did not see it as so unusual an occurrence that it should be reported to the Charity Commission.
During the hearing, Brooks disputed a claim made recently by Richard Heaton, the former permanent secretary at the Cabinet Office, to the Public Accounts Committee's inquiry into Kids Company, that the Cabinet Office had been in discussions with Kingston Smith before making one of its final payments to the charity.
Brooks said he had been surprised to hear this because Kingston Smith had had no dealings with the Cabinet Office.
The panel of MPs also heard from Alastair Duke, a partner at PKF Littlejohn, which conducted an inquiry into the charity's governance and financial controls on behalf of the Cabinet Office in 2014, and Will Richardson, a partner at PwC, which was appointed by Kids Company to carry out a three-day investigation into allegations of financial management at the charity before the Cabinet Office made a £3m payment just days before the charity collapsed.