What To Watch For In A Fiscal Sponsor

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Every now and again, the social impact space circles back to a familiar but intriguing idea. Not a new concept, fiscal sponsorship continually resurfaces as a popular option.

And why not? As founders continue to innovate, and we continue to see loose networks mobilize for change, the idea of doing charitable deeds while hedging risk and costs is appealing.

But what is the question that is always lingering in the back of our minds?

What’s the downside?

And that’s exactly what I wanted to get a better understanding of from Community Partners, a nonprofit civic intermediary organization and  leader in fiscal sponsorship education and services.

Mamie Funabashi, CFO of Community Partners, was kind enough to take some time out and answer a few questions on what makes fiscal sponsorship appealing, what to avoid and ways founders can protect themselves. If fiscal sponsorship is a new concept to you, take a moment to read “Fiscal Sponsorship: A 360 Degree Perspective” by the National Network of Fiscal Sponsors. And learn how to strategically determine what arrangements fit best with “Find a Fiscal Sponsor That Fits” at Grantspace.


Mamie, thanks so much for taking time out to answer a few questions. For those looking to fiscal sponsorship as an option, it might be hard for them to understand the differences from, say, a nonprofit corporation model. At its core, what makes fiscal sponsorship such a unique opportunity?

It makes it possible for a social entrepreneur to thoughtfully wade into nonprofit waters, rather than jumping into the deep end without a life jacket. A comprehensive fiscal sponsor puts a whole team behind your social change effort. So if you’ve got a great idea to do good, but you’re not yet ready to take on all the admin, risk management, HR, etc., fiscal sponsorship offers a way forward. Some fiscal sponsors, like Community Partners, also have experienced staff to help guide new nonprofit leaders and develop their skills.

 
As an attorney, it’s my sworn duty to ask this next question (well not really but I feel like it is.) What should we make sure is in the fiscal sponsorship agreement we sign with a fiscal sponsor?

Good, you’re assuming there is a written agreement, and there definitely should be! The agreement should cover services offered, fees charged, level of expected communication, policies, and procedures. The process for separating funds should also be included, along with provisions for who will own the project assets.


Now, here is the 50 million dollar question. Imagine we’ve read the articles referenced in the introduction so we understand what fiscal sponsorship is. We also understand who we should be looking for, and how to make certain they’re a snug fit. Who is it we should avoid? What 5 red flags should we watch out for in a potential fiscal sponsor?

  1. Not ensuring individual project funds are managed separately.
  2. Problematic audits, or a lack of financial transparency.
  3. Insufficient insurance and/or no policies in place to manage risk.
  4. Failing to provide sufficiently detailed financial reports to you on a regular basis.
  5. A mission and values that do not align with your own (or a lack thereof).


That makes complete sense. So now let’s say we’re clear on our needs, we think we’ve found a fiscal sponsor that fits and, thankfully, not one of the red flags you’ve identified above are present. Still, how can we protect ourselves while in a fiscally sponsored relationship?

Proper vetting before entering into a relationship with a fiscal sponsor is what’s most important. Beyond that, a project leader should continue to look each year at the fiscal sponsors’ 990s and annual reports, and make sure the needs of their project continue to be met.


Ah, so the job never ends. To that point, how long should a fiscal sponsorship last? Is there a best practice number?

There are no rules about how long a project should remain under fiscal sponsorship. Community Partners has projects that have been with us for more than a decade and are perfectly happy to continue running their organizations in this way. Others have successfully made the move to independence as their own autonomous 501(c)3 organizations after developing their projects to a certain level of financial and organizational strength. It’s an individual choice, and one we, as fiscal sponsors, can help and support.


This has been fantastic. If anyone out there wants to keep learning, where can they get more information on fiscal sponsorship?

Visit the National Network of Fiscal Sponsors online. Their site offers helpful information about finding a fiscal sponsor and what to look for. NNFS also has developed best practice guidelines for fiscal sponsors, it’s something we were involved in as one of the founding members of the network, and we continue to serve on the steering committee.


I want to thank Mamie again for taking the time to flesh out what we should look for in a fiscal sponsor and when we should run for the hills. If you’re entertaining the idea of fiscal sponsorship, please take a moment to check out the resource list below. And if you’ve recently entered into a “less than thorough” sponsorship take heart. It’s never too late to protect yourself. Just use Mamie’s points as a benchmark and get to protecting yourself today. Whether that’s by amending your fiscal sponsorship agreement or transitioning to a new sponsor.

Responses are that of Mamie Funahashi, CFO, Community Partners


Fiscal Sponsorship Resource:

Fiscal Sponsorship: Six Ways To Do It Right by Greg Colvin



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