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Nefesh B’Nefesh Failed to Comply With Legal Requirements, Report Reveals, Risks Loss of State Funding

Israeli government authority warns aliyah organization it could lose state funding if it doesn’t get its house in order; NBN responds that audit was ’standard’ and majority of required revisions have already been implemented

Judy Maltz
Judy Maltz
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Nefesh B’Nefesh co-founders Rabbi Yehoshua Fass and Tony Gelbart flanking then-Immigrant Absorption Minister Yoav Gallant and a group of future lone soldiers at Ben Gurion Airport, August 2019.
Nefesh B’Nefesh co-founders Rabbi Yehoshua Fass and Tony Gelbart flanking then-Immigrant Absorption Minister Yoav Gallant and a group of future lone soldiers at Ben Gurion Airport, August 2019.Credit: Shahar Azran
Judy Maltz
Judy Maltz

A government-commissioned audit has raised concerns about financial practices at a major organization engaged in promoting and facilitating immigration to Israel.

The report, recently prepared at the instruction of the Israeli government authority that oversees nonprofits, reveals a lack of financial oversight and failure to comply with basic legal requirements at Nefesh B’Nefesh – an organization that brings several thousand immigrants to Israel each year from North America.

The organization has been warned by the Israeli Registrar for Nonprofit Associations that if it does not resolve all the problems raised in the audit by July 1, it could lose the special certification that allows it to receive government funding.

This would be a death blow to the organization, which receives more than a third of its 60-million-shekel ($17.5 million) annual budget from the Immigrant Absorption Ministry and the Jewish Agency.

In a letter to Nefesh B’Nefesh, the registrar also threatened to exercise “other powers” vested in him by law if the organization doesn’t get its house in order. The registrar operates under the auspices of the Justice Ministry.

The organization's responses to the preliminary draft of the findings are presented in the report.

In a request for comment from Haaretz, Nefesh B’Nefesh said: The Registrar of Nonprofits’ audit of the organization was conducted as part of the official practices of the registrar. The majority of the required revisions brought forth in this audit have already been fully revised and implemented, and the organization will continue with this process. Nefesh B’Nefesh, which prides itself on excellent management and public transparency, appreciates the registrar’s professional recommendations and will work to fully implement all feedback, while continuing in its mission of assisting the thousands of olim who are looking to make aliyah.”

Founded in 2002, Nefesh B’Nefesh was originally headquartered in the United States, but has moved most of its activities to Israel in recent years. It was registered as a nonprofit in Israel in 2011, and since then most of its activities have been transferred to Israel – though it still maintains a fundraising arm in the United States.

Nefesh B’Nefesh operates as a subcontractor for the Israeli government, handling the logistics involved in bringing immigrants to Israel from the United States and Canada. It has no competitors in the field.

It is the single largest recipient of funds designated for “aliyah promotion organizations” by the Immigrant Absorption Ministry. Out of the 14.4 million shekels allocated to such organizations in 2019, Nefesh B’Nefesh received 13 million shekels – more than 90 percent of the total. The organization finances flights and holds informational workshops for immigrants. It also runs a special program for so-called lone soldiers – Diaspora Jews who join the Israeli army – in partnership with the Friends of the Israel Defense Forces.

A group of new immigrants with members of Nefesh B'Nefesh and then-Immigrant Absorption Minister Sofa Landver in 2017.Credit: Shahar Azran

The establishment of Nefesh B’Nefesh did not lead to any marked increase in aliyah from North America, as had been hoped. In recent years, the number of immigrants moving to Israel from the United States and Canada has hovered at around 3,000 annually.

The government-commissioned audit, conducted between February 2019 and February 2020, examined activities and documents dating back to 2016 and 2017. The audit was conducted by Doron Perlstein from Schmidt Ben-Tsvi Perlstein, a Jerusalem-based accountancy firm.

The 55-page report, marked as classified, notes that Nefesh B’Nefesh received a preliminary draft of the findings and has corrected some of the problems uncovered by the auditor, but not all of them.

Among those issues that have been resolved, Perlstein found that Nefesh B’Nefesh lacked any formal policy regarding senior executive pay; that workers were receiving loans without any written contracts; that the organizational credit card was not subject to any payment ceiling; that only one authorized signatory was signing checks made out to suppliers, rather than two; that the Nefesh B’Nefesh executive board met very infrequently and was not involved in policy planning; and that its budget enumerated expenses but not revenues.

In addition, the report found that Nefesh B’Nefesh had transferred funds to several other organizations – among them Friends of the Israeli Scouts in the United States, which, according to the report, “encourages young people from around the world to immigrate to Israel and enlist in the army as lone soldiers” – without the permission of its executive board, as required.

Nefesh B’Nefesh responded in the report that it no longer funds these organizations, and that if it did provide funding to other organizations in the future, it would only do so with the approval of its executive board.

The following are some of the other problems cited in the report that still await a final determination by the registrar as to whether they have been resolved:

* The executive board of Nefesh B’Nefesh did not monitor spending in the organization or supervise the activities of Executive Director Rabbi Yehoshua Fass, as required by law. In its response, Nefesh B’Nefesh denied this was the case, but at the same time promised that the executive board would take its responsibilities more seriously in the future.

Nefesh B’Nefesh Executive Director Rabbi Yehoshua FassCredit: Shahar Azran

* Nefesh B’Nefesh’s internal auditor did not hold any discussions about what the report describes as the “high” salary paid to the organization’s accountant: Eitan Caspi received 255,000 shekels in 2016 and 567,000 shekels in 2017 for his services, the report notes. In its response, Nefesh B’Nefesh argued that there was nothing unreasonable about the accountant’s salary considering the amount of work he did during those years.

* A member of Nefesh B’Nefesh’s executive board served as a signatory on the organization’s U.S. bank account, even though the report stated he had never been authorized to do so. The report notes that this was allegedly in violation of the organization’s bylaws. Nefesh B’Nefesh promised in response to rectify the problem.

* Invitations to Nefesh B’Nefesh’s General Assembly meeting did not include an agenda or relevant documents and reports, as required by law. Nefesh B’Nefesh responded that it would address this issue.

* Only one authorized signatory – rather than two, as required by the registrar – is signed on checks paid out from Nefesh B’Nefesh’s bank account in the United States. Nefesh B’Nefesh responded that the bank in the United States does not allow two signatures on checks. The auditor recommended that Nefesh B’Nefesh submit to the registrar a legal opinion on the matter.

In response to a request for comment, Justice Ministry spokeswoman Carmit Orpaz Yamin said audits of this type are conducted either as part of the routine monitoring of nonprofits or “in cases where a suspicion has arisen of improper management.” The registrar has various options for dealing with nonprofits that do not comply with the law, she said, including withdrawing their Certificate of Proper Management. The government is not allowed to transfer funds to a nonprofit that is not in possession of this certificate, which must be renewed every year. Often, private donors will also withhold contributions from organizations that lack this certification.

The Justice Ministry spokeswoman said that, among other options, the registrar could request that a nonprofit be dissolved if it did not address irregularities brought to his attention in an audit.

When reached for comment, Perlstein responded in an email: “We obviously cannot provide any information beyond that which appears in the report.”

Nefesh B’Nefesh described the audit as “standard” when asked why it believed it had been targeted by the registrar.

“The registrar performs routine auditing of nonprofit organizations and public-benefit corporations as part of its annual work program,” Yael Katsman, the organization’s spokeswoman, wrote in an email. “These audits are carried out as part of the ongoing efforts with these organizations, and it is customary to select a range of nonprofits every year, from different sectors, and with different annual turnover rates.”

Asked if Nefesh B’Nefesh was concerned it might lose its Certificate of Proper Management, she replied: “Absolutely not. The letter in mention is a standard formatted letter that accompanies every audit sent by the registrar. It is not a specific warning to any individual organization. The audit was generally positive and confirmed that Nefesh B’Nefesh is acting in accordance with the law, is properly managed and correctly promoting its objectives. The organization has already incorporated changes to address the irregularities mentioned and will comply with the remainder according to the timeline set by the registrar.”

She said that Nefesh B’Nefesh had already started “to expand and diversify” the organization’s management team before the audit “due to the expansion of operations, and will continue with this process.”

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