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March 06, 2015

Closing N.Y. Charity Paid Millions to For-Profit Affiliate

FEGS, a social-service nonprofit in New York that is shutting down under the weight of a recently disclosed $19.4 million deficit, made increasingly large payments to a for-profit subsidiary in the years leading up to its collapse, according to The Jewish Daily Forward.

The charity owned 95 percent of AllSector, a firm that provided technology services to FEGS and other nonprofits. A former FEGS chief executive said the organization established AllSector in 1998 in the hope that it "someday [would] make money" for the charity. After paying the company $2.1 million to $4.9 million a year for "computer consulting" or "performance of services" through the 2000s, FEGS sent its affiliate $8.6-million in 2011 and $9.1 million in 2012, according to tax records.

The rising outlays came as FEGS grew rapidly, doubling expenditures to $229 million over more than a decade and merging with competitors to become one of the country's largest social-service charities, the Jewish Daily Forward writes. Representatives of FEGS management declined the newspaper's requests for comment on the AllSector payments and other aspects of the nonprofit’s finances, which are reportedly the subject of New York City and state investigations.