February 14, 2017; Forward

NPQ readers may recall our 2014 coverage of the collapse of the Federation Employment and Guidance Service, better known as FEGS. FEGS was, at the time of its collapse, the largest social service agency in New York, with a budget of $250 million a year. There have been a number of analyses of its closure, none especially complimentary to the financial management of the organization, which largely depended on government contracts. Afterward, its programs and clients were dispersed to other local agencies, as was some portion of the massive staff, many of whom were low-paid direct care employees. Creditors were also left in the lurch as the organization filed for bankruptcy.

But now, as a part of that bankruptcy, FEGS’s former executive vice president, Ira Machowsky; its former president, Gail Magaliff; and its accounting firm, Loeb & Troper, may be held to account for their negligence as creditors sue in an effort to hold FEGS managers accountable and secure funds to pay debts owed by FEGS. A filing by creditors’ attorneys asserts that Machowsky and Magaliff may be liable for “negligence and breach of fiduciary duty” and Loeb & Troper for “negligence and aiding and abetting breaches of fiduciary duty.”

Machowsky, who championed a social enterprise effort that cost the organization $72 million over the years, received a $92,000 bonus only a month before FEGS announced that that it had lost $20 million and needed to close. Magaliff sued the estate of the defunct agency for $1.2 million in deferred compensation and also tried to prevent the paying off of other claims before she got hers.

As we wrote in May 2015, while Magaliff earned a total of $638,880 in base salary and additional compensation in 2012, other employees earning far less also have claims for unpaid severance and vacation time, and there will not be enough to pay all such claims off. For instance, Gina Thomas, a 53-year-old case manager for people with mental illness, was laid off after 28 years and is owed $11,000. “I laughed,” said Ms. Thomas at the time. “Then I got angry.”

Loeb & Troper has been associated with a string of high profile accounting scandals at Jewish charities.—Ruth McCambridge