Anatomy of a Mega-Nonprofit Headed for Bankruptcy

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March 18, 2015; Crain’s New York


NPQ has been following the high-profile closure of Federation Employment and Guidance Services (FEGS), a social services organization in New York City with a budget last year of $285 million. The organization explained its failure in sparse terms by saying that it took a $19.4 million loss last year, but there are still many questions about where the loss came from.

Now that it has filed Chapter 11, those questions are beginning to get answered in the form of an affidavit from FEGS’ CEO.

At the end of its last fiscal year, which ended June 30, 2014, FEGS reported $105 million in liabilities and $144 million in assets. But between 2013 and 2014, revenue declined while salaries and benefits rose by seven percent. “General operational and administrative inefficiencies,” according to FEGS chief executive Kristin Woodlock’s affidavit, “pervaded” the organization. She chalks the crisis up to leadership instability and an outdated financial-management system. Three chief financial officers left in two year, and it was inefficient in billing collections and this “compromised management’s ability to make responsive business decisions in a timely manner,” she wrote. FEGS also had unbreakable leases for expensive space large portions of which sat unused and therefore un-reimbursable through contracts.

The affidavit also suggests that these problems were not due to a lack of money. In fact, it cited an “overly prohibitive administrative cost structure which was significantly more than target industry standards, coupled with the inability to keep pace with the growing organizational complexities of the organization as a whole.”

And on top of all of that, the organization had overinvested in social enterprises that were not bringing in the revenue expected from other sources, instead imposing additional cost on their parent. According to the same affidavit, the most recent audit showed that “the organization’s losses were monumental and that cash resources were rapidly depleting.”

Still, FEGS tried to buy some time by reaching out to other organizations for a capital infusion. Only the UJA-Federation of New York agreed, loaning FEGS $10 million to support operations while its numerous licenses are transferred to other providers. Eric Goldstein of UJA said, “Our top priority is to provide what is needed to maintain vital services and ensure a smooth transition of FEGS programs to other agencies. The action by our board today will help achieve that goal.”

Two program transfers to agencies have already been made: Manhattan-based Jewish Board of Family and Children’s Services will take over FEG’s behavioral health services and Fedcap will take over FEGS’ WeCare program.

FEGS still employs 1,900 skilled professionals, for a biweekly payroll and benefits cost of $3.6 million.—Ruth McCambridge