Spotlight Turns on Auditor of Major Jewish Charities After Financial Scandal Enmeshes Three Clients

Three clients of New York-based Loeb & Troper, which The Jewish Daily Forward called the “auditor of choice” in the Jewish community, have been accused of financial wrongdoing.

According to the Forward, Loeb & Troper, with only 19 partners, audits “far more” Jewish charities than any other firm. The small Manhattan firm has conducted audits for 28 of the large Jewish nonprofits in New York City, “a very big market share for a relatively modest firm,” Nonprofit Quarterly reported.

Loeb & Troper audited a large Jewish social service agency called FEGS, which announced in January that a $19 million deficit had forced it to close. The firm also audited New York Legal Assistance Group, a Jewish legal aid charity. The group’s president resigned this month after the federal government launched an investigation into accounting irregularities. Additionally, the firm audited YAI, a huge New York charity that provides housing and other services to the developmentally disabled. The charity was accused in 2011 of filing false financial reports with the state as part of an 11-year attempt to defraud Medicaid. YAI did not admit wrongdoing, but paid $18 million to New York and the federal government, the Forward reported.

“Despite the fact that no one is accusing Loeb & Troper of malfeasance,” Nonprofit Quarterly reported, “some do note that the firm is one relatively visible commonality in what the Forward has previously described as a group of agencies with a lot of – perhaps too many – interconnections, and that may hurt it in the end.”

Some in New York’s Jewish charity community are reportedly looking at other firms. The American Jewish Joint Distribution Committee and the Zionist Organization of America have left Loeb & Troper. The Forward quoted an unnamed source, a “Jewish communal insider,” who said others may be leaving as well. The firm did not respond to the Forward, and a spokeswoman told INSIDE Public Accounting that the firm typically does not talk to the press.

The firm, founded in 1919, has decades of experience auditing Jewish charities. In fact, the Joint Distribution Committee was an early client. The committee helped Jews escape from Western Europe during the rise of the Third Reich. One of the firm’s founders was personally responsible for resettling more than 900 Jewish refugees in Holland, France, England and Belgium in 1939. The Joint Distribution Committee found another auditor in 2011, and a spokesperson said the charity wanted a global firm, the Forward reported.

Another question that has arisen in light of the scandals at FEGS and New York Legal Assistance Group is the role of the UJA-Federation of New York, a network of nearly 100 Jewish charities. Both troubled nonprofits were members, and two other network agencies have been hurt by alleged or admitted financial irregularities since mid-2013, the Forward reported. One of those agencies is the Metropolitan Council on Jewish Poverty. Its CEO was arrested on fraud charges in 2013. A former Loeb & Troper partner was the CFO of the council from 2012 to 2014.

The Jewish newspaper also reported “significant overlap” among board members among network agencies, and that executive directors can hold their posts for 20 years or more.

The federation, which raises funds and issues grants to network agencies, has since developed new governance guidelines to beef up oversight.

“Federations have an obligation to oversee their agencies, and that becomes difficult because of the intertwining of agency boards and cross-relationships that are fairly complex,” Rabbi David Teutsch told the Forward. He heads the Center for Jewish Ethics at the Reconstructionist Rabbinical College. “They have to be more wary of conflicts of interest.”