Tim Loughton, the former children’s minister, said that today’s report by a group of MPs on the failed charity Kids Company had "serious implications" for the way the Charity Commission oversees charities and the way ministers deal with them.
Loughton, who gave evidence in November to MPs on the Public Administration and Constitutional Affairs Committee for its inquiry into Whitehall’s relationship with Kids Company, said the publication revealed a "catalogue of incompetence, complacency and arrogance".
The PACAC’s report, published today, says there was an "extraordinary catalogue of failures" relating to the charity, which closed abruptly in August.
Loughton said today: "There are serious implications for the way government ministers deal with charities and achieve value for money for the taxpayer, the way the Charity Commission oversees them and for the trustees and executives behind Kids Company, who somehow thought they were too charismatic and too close to Number 10 to fail."
He said that in addition to the children who relied on Kids Company for support, which he said was "too often patchy, poorly evaluated and ultimately unsustainable", other casualties from the closure of Kids Company were the "many excellent charities performing an essential role working with very challenging children and young people".
He said: "They have never sought or considered themselves entitled to the special treatment that Kids Company took for granted. It is vital that this sorry saga does not undermine or tarnish their important work."
In his evidence to MPs in November, Loughton, who is still the Conservative MP for East Worthing and Shoreham, said civil servants had made it clear while he was children’s minister that there would be "uncomfortable ramifications" if he did not approve funding applications from Kids Company.
The government reaction
The Cabinet Office minister Oliver Letwin said in a statement that he stood by his declaration to the committee that it was the right thing to do to give the charity one last chance to restructure, referring to a grant of £3m that was given to Kids Company just days before it closed and despite warnings from civil servants.
"We will of course pay careful attention to this report and in light of what we now know about Kids Company we will be reviewing our grant-giving process," he said.
"Charities across the country do important work transforming people's lives and strengthening communities, and they are well placed to deliver publicly funded services. By updating the process by which grants are awarded we will make sure the most stable, most effective charities receive taxpayer funds."
Reactions from elsewhere
Other reactions to today’s report include one from the chief executives body Acevo, which has called for a new body to be set up that would support good governance and leadership in the voluntary sector.
Acevo said it wanted to establish a "charities excellence hub" because it feared that "hundreds of charities will cease to function unless good governance and leadership are bolstered".
Acevo said that neither the government nor the Charity Commission provided such support and called on both bodies to back the move.
"Regulation of charities alone is not a sustainable approach – charities need additional financial, structural and moral support."
Acevo recommended that additional resources should be made available to the Charity Commission and this funding should be spent by the regulator on providing support to the sector.
Dan Corry, chief executive of the charity think tank NPC, said the majority of charities were better run than Kids Company but the sector must learn lessons from its closure.
"The committee is right to suggest that charities should refresh their leadership to bring in new thinking, but this never happened at Kids Company," he said.
He said that in future the government must ensure that independent experts examine evidence of the impact made by charities before payments to them are agreed.
"The best charities will be more likely to get the grants, and the less effective ones will be encouraged to smarten up," he said.
Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, said he was pleased the committee recognised that Kids Company was an aberration among charities, and that its poor practices should not tarnish charities as a whole.
A spokeswoman for the accounting firm PKF Littlejohn, which gave evidence to the PACAC, said that the firm highlighted Kids Company's "perilous cash flow" and "the absence of a reserves buffer to guard against a rainy day" to the Cabinet Office in a report in early 2014. "Eighteen months on, when a rainy day came in the form of serious allegations against the charity and funding dried up, the charity was forced to close," she said.
A spokeswoman for the accounting firm Kingston Smith, which also gave evidence to the committee, said she could not comment on individual clients.
William Shawcross, chair of the Charity Commission, which has an ongoing statutory inquiry into Kids Company, said in a statement that the report highlighted the role of trustees in charities’ finances.
He said the regulator had already updated its guidance on managing financial difficulties and setting appropriate levels of reserves.
"We are raising awareness of our regulatory role with the public and will explore the committee’s other recommendations, including the ease with which people can make complaints," he said.