Tuesday, March 17, 2015

Sad but useful lessons from the FEGS Implosion

Capital New York has a very interesting story about the collapse of FEGS -

The story describes several critical issues, including:
  • A large number of for-profit efforts that FEGS propped up with cash infusions:

It is unclear whether FEGS’ for-profit firms ever made any money. And disclosure documents show the reverse—that the charity has for years been propping up the for-profit subsidiaries with a steady stream of funding.

Last week, the Forward reported that the charity began transferring millions of dollars to the for-profit subsidiaries by 2011. Returns reviewed by Capital show FEGS moving $8.6 million from the nonprofit side to one for-profit information technology company, AllSector, in 2011. In 2012, the charity transferred even more: $9.1 million.
  •  Loans:
To build up its housing portfolio, FEGS routinely had gone to a variety of city and state funding sources over the past decade, seeking millions of dollars’ worth of advances on construction and capital costs for their new facilities, taking out low-interest loans that it didn’t have the means to pay back.
From the federal Department of Housing and Urban Development, the charity received $800,000 in advances for housing developments and S.R.O.s. From the state’s Office of Mental Health, more than $3.4 million for facilities in East New York and the Bronx. And for more than a decade, FEGS, like many other nonprofit institutions around the state, had been financing new projects with money from bond proceeds through the Dormitory Authority of the State of New York, a state public authority.
But read the full article and decide for yourself: could board oversight have been stronger? 

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