So what is fiscal sponsorship, anyway? I consider fiscal sponsors to be vital to the process of civic engagement and catalysts for the continuous renewal of the nonprofit sector. By providing a mechanism which enables groups to organize around societal concerns without having to incorporate, fiscal sponsors also add value to their communities by freeing founders and organizers from the need to devote large amounts of time to administrative tasks.
How Does It Work?
Fiscal sponsors are 501(c)(3) charitable corporations which provide unincorporated groups – whose missions are aligned with their own – with a tax-exempt home while allowing them to maintain programmatic autonomy. Sponsored programs and their staff are legally part of the sponsor’s organization.
Traditionally, the fiscal sponsor provides accounting, human resources and other back office services. The sponsor’s services are paid for by an administrative charge applied to the revenues or expenses of the sponsored program. From our many years of providing these services, TSNE has learned that many of our fiscal sponsorship clients can also benefit from capacity-building support. So we now offer fiscal sponsorship clients the opportunity to work with us in such area as program assessment, information technology consultation and strategic planning.
There is a key difference between this arrangement and the more conventional one, in which an organization houses a variety of distinct programs with separate funding streams. In a fiscal sponsorship relationship, whether in its traditional or new expanded scope, programs are semi-autonomous. They do not belong to the sponsor but generally have separate advisory boards which make strategic and programmatic decisions. Moreover, sponsored programs are responsible for their own fundraising. The sponsor does not cover any shortfall or retain any surpluses.
Who Does It?
Groups offering fiscal sponsorship services are varied in their profiles. They range from the incidental – churches, community foundations and other local agencies that may help emerging organizations on an occasional basis based upon mission overlap – to a handful of groups organized specifically to provide these services. Often, these “professional” fiscal sponsors serve a particular niche within their communities, albeit sometimes a broadly defined one.
Earth Island Institute in San Francisco, for example, incubates groups involved in environmental activism. TSNE and the Tides Center (San Francisco) provide support mainly to social justice groups. Community Partners in Los Angeles pursues a “place-based” strategy.
The level of service provided by fiscal sponsors is also variable, depending on the sophistication of sponsors’ financial and human resource systems, the availability of shared space, and the groups’ capacity to provide other supports such as mentoring, grantwriting, technology support and organizational development help.
Who Needs It?
Groups who seek out sponsors are even more diverse. Many are young and still finding their way. Groups in this category are examining their viability in terms of attracting members, funding and the host of other factors needed for longer-term survival.
Some do not ever wish to institutionalize their operations, either opting to go into and out of existence with as few bureaucratic headaches as possible. Others are content to remain fiscally-sponsored projects indefinitely. (One of TSNE’s projects has been with us for 22 years!) The fluidity of the corporate setting provided by the practice of fiscal sponsorship allows for a natural vetting of groups that are not viable as independent entities in the long term.
The passion and diversity of the field is its strength but, partly because of its behind-the-scenes orientation, it is often under the radar screen and is largely unsupported as a practice. Groups seeking sponsors and those who are serving in that role or considering doing so have nowhere to go for reliable information on what the pros and cons are in such a relationship, what criteria to look for in a sponsor, or how to act as a responsible fiscal sponsorship.
What to Look for in a Sponsor
And there are significant risks, on both sides. Fiscal sponsors are legally responsible for all of the activities of the groups they house. As sponsors, they must therefore pay careful attention to intake and oversight systems. Taking on a group whose finances are shaky or whose leadership and governance are in disarray is asking for trouble.
For their part, sponsored groups are dependent on the competency of the sponsors’ staff and the reliability of their systems. A number of TSNE’s fiscal sponsorship clients are refugees from other sponsors whose capacities to provide these services were less than optimal.
It is particularly important for groups looking for a fiscal sponsor to engage in a due diligence process. They need to make sure a prospective sponsor has:
- A shared or similar mission and vision with their own
- Sufficient financial resources to assure continuous, uninterrupted operation
- Sound systems and internal protocols and controls that are based on generally accepted financial and accounting principles and regulations
- Written administrative policies and procedures, as well as those for risk management
- A long-term organizational commitment to fiscal sponsorship
- A sufficient number of staff responsible for the services contracted
- Properly-trained fiscal sponsorship staff who value the customer service aspects of their job
Currently, the process of finding a complementary 501(c)(3) home can be quite confusing for groups looking for fiscal sponsorship. But help is on the way. A group of fiscal sponsors from around the country, including TSNE, has been meeting to craft a set of standards for the field. Funding from the W.K. Kellogg Foundation through the Tides Center is making this work possible. Nearly completed, this effort will be followed in short order by a handbook for fiscal sponsors.
Achieving Our Goals Together
With a strong, experienced fiscal sponsor, unincorporated groups, projects and grassroots coalitions can focus their attention on what they do best and care about most – their mission and programs. Fiscal sponsors are able to achieve their missions more broadly thanks to their fiscal sponsorship partner groups. It’s a win-win for everyone – especially for the families and communities served through fiscal sponsorship partnerships.
In the ED Forum, TSNE’s Executive Director Jonathan Spack reflects on issues facing nonprofit organizations. He invites your ideas and insights in response to his columns. Follow Jonathan on Twitter @JonathanSpack.