Details of huge payments made to individual clients and relatives of staff at Kids Company were sent to ministers just days before the Government handed over a £3 million grant, according to a report.
The charity spent more than £50,000 on a PhD for the relative of an Iranian diplomat while two children of staff members were awarded more than £130,000 in client payments, the leaked report drawn up by auditors at PricewaterhouseCoopers (PwC) found.
Other spending included £305 on a pair of designer shoes while one client received more than £47,000 in tax-free support in 2014, according to the BBC Newsnight and BuzzFeed News investigation.
On June 26 Cabinet Office officials advised ministers that a further grant would "not represent value for money" but three days later ministers Oliver Letwin and Matthew Hancock agreed to give the £3 million to help restructure the charity, it said.
The PwC report was sent to the Cabinet Office on July 27, three days before the grant was actually paid to the charity, according to the BBC. Within days Kids Company, which had been run by its high-profile founder Camila Batmanghelidjh, collapsed and filed for insolvency.
John Podmore, a trustee of the Pilgrim Trust, which pulled its funding from the charity in 2003 and raised concerns with the Charity Commission, told BuzzFeed he was "incandescent".
"The car crash just became a motorway pile-up," he said. "The report makes it quite clear - and underlines why at the Pilgrim Trust we withdrew an initial grant and refused a later application - that (Kids Company's) financial practices were highly dubious and its work with children totally opaque.
"In the light of this report no one in their right mind would sanction further funding, rather they would call a complete halt and demand answers as to where the previous funding went and on what basis."
It comes after a report by a spending watchdog found at least £46 million of public money was handed to Kids Company despite repeated concerns being raised by officials about the way it was being run.
The charity relied on taxpayer funding for its cash flow and would issue public warnings about its future whenever there were concerns about the continued supply of government money, the National Audit Office (NAO) found.
Bernard Jenkin, chairman of the Commons Public Administration and Constitutional Committee, which has been investigating the charity, said: "I have seen the PwC report and it is being circulated to the committee. Obviously I am aware of its contents."
A Cabinet Office spokesman said: "The £3 million funding provided to Kids Company had strict terms and conditions to make sure that poor financial management stopped."