New York: Over the past four months, most of its multi-million dollar government contracts and its poor and disabled clients have been handed over to new agencies. Its employees have scattered, with some in new positions, some still unemployed and others struggling to get by in jobs that pay less than they once earned.
Now, hundreds of unpaid creditors - furniture and security companies, banks and former workers anxiously awaiting severance pay - are gearing up in bankruptcy court, preparing to battle over the remains of FEGS Health and Human Services, once one of New York City’s largest social service agencies.
Among them is Gail Magaliff. Remember her? She was the chief executive who presided over FEGS as it fell apart amid increasing financial woes late last year.
In legal papers filed in bankruptcy court last month, Magaliff argued that she was owed a hefty slice of what’s left of the pie - $1.2 million (Dh4.4 million) in deferred compensation, to be precise.
Magaliff, who earned a total of $638,880 in base salary and additional compensation at the non-profit agency in fiscal 2012, said FEGS had promised her the deferred compensation for her “services as a valuable executive employee,” according to court filings.
It’s the kind of claim that surfaces sometimes when an agency or company goes down the tubes. But to some former FEGS employees, it is an outrage.
The woman they blame for the collapse of the 80-year-old agency should get more than $1 million from its ruins? While some workers are still hunting for work and hundreds more are still waiting for severance pay?
“Are you kidding me?” said Gina Thomas, a 53-year-old case manager for people with mental illness who was laid off last month after working at the agency for 28 years. “I laughed,” said Thomas, of Waterbury, Connecticut, who said she was owed about $11,000 in severance, vacation and sick pay and was still looking for a job. “Then I got angry.”
Magaliff’s lawyer, Geri S. Krauss, did not respond to several phone calls and emails requesting comment. Magaliff, who ran FEGS for about seven years until announcing her retirement in November, also could not be reached for comment.
Magaliff’s legal papers, along with bankruptcy court filings from FEGS’ new managers, outline her arguments and offer some insight into how things fell apart at the widely respected agency, which had an annual budget of more than $200 million. The agency filed for bankruptcy in March.
Magaliff acknowledged that FEGS’ counsel had informed her in January that it was “not presently in a position to make payments of deferred compensation or bonuses that may be due to you.”
But she said the money “was earned over 25 years of employment as a senior executive” at FEGS and described the agency’s failure to pay as a breach of its agreement. She has filed a lawsuit against FEGS and has asked the bankruptcy court judge to prohibit the agency from using the funds for other purposes.
During Magaliff’s tenure as chief executive, corporate executives and community leaders praised the agency for serving tens of thousands of vulnerable New Yorkers every year. But about a month after she announced her retirement, FEGS’ current chief executive, Kristin M. Woodlock, informed city and state officials that the agency had a $19.4 million shortfall and was struggling to stay afloat.
By January, officials were scrambling to find new providers of job placement, housing, mental health care and other services for thousands of clients. By February, the Manhattan district attorney’s office had begun investigating whether there had been any financial wrongdoing.
In March, Woodlock outlined in court filings a host of financial problems that had festered under Magaliff’s watch: Between the 2013 and 2014 fiscal years, salaries and benefits increased even as revenues fell. (Thirty per cent of FEGS’ budget went toward administrative costs, including salaries, which is considerably higher than most watchdog groups recommend.)
About 74 per cent of the nonprofit’s 350 programmes were losing money, according to Woodlock. The financial problems were masked in 2013 by a one-time gain from an insurance settlement and other sources, she said.
By the end of 2014, it became clear that “the organization’s losses were monumental and that cash resources were rapidly depleting,” Woodlock said in an affidavit filed in bankruptcy court.
For Thomas, who earned $59,450 a year at FEGS, the news has been devastating. These days, she is baking cakes and selling them, and collecting unemployment benefits while she searches for work.
“I trusted her,” she said of Magaliff. “I trusted how she did business. How is this possible?”
Magaliff isn’t offering any answers. By June 1, the agency she once led plans to transfer the last of its contracts and clients to new providers. For the first time since the Great Depression, FEGS will no longer serve the needy.
The agency’s new managers have vowed to pay its former employees what they are owed in severance and vacation and sick time. But as for the deferred compensation that their former chief executive says she is owed? She is still waiting.
