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Fiscal Sponsorship Doing it Right
Greg Colvin Adler & Colvin San Francisco, California Copyright 2010, Adler & Colvin
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What is Fiscal Sponsorship?
An arrangement between a 501(c)(3) public charity and a project in which, typically, the charity receives and expends funds to advance the project while retaining discretion and control over the funds. Fiscal sponsorship is a term that has been coined, in large part by my partner Greg Colvin, to describe a functional relationship between a project and a sponsor (often a CF), that has evolved over time. Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
Not Fiscal Agency Fiscal Agency – Wrong Term charity is not agent to receive project $ Fiscal Sponsorship – Preferred Term charity directs, controls project $ We like the tem fiscal sponsorship, rather than fiscal agency because the first connotes that the CF is simply an “agent” for the project with no independent role. It also implies that the project is just using the sponsor’s exemption without any oversight or role by the sponsor. Much discussion in the early 1990’s. John Eddie’s book FA a trap fro the unwary. Copyright 2010, Adler & Colvin
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Two Main Ways to Do It Right
Direct Project Model (A) * Independent Contractor is Model B Pre-Approved Grant Model (C) There are many models of activities that one might label as fiscal sponsorship. The two most typical I will talk about today. The Direct Project Model and the Pre-Approved grant model. Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
In the direct project model, the project is an in house project of a CF. It is not housed in a separate legal entity. The persons running the project may be employees or volunteers. Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
In the pre-approved grant model, the one that creates the most issues, the project is a separate legal entity. That entity can be a corp, a trust, a partnership or a sole-proprietorship. Money comes into the CF and then out to the entity housing the project. I’m sure can already see the potential for problems is the parties do not properly understand and define the relationship. Lets break these down further. Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
Direct Project, Model A Project belongs to sponsor Project is not a separate legal entity Project personnel are employees / volunteers Contributions belong to sponsor Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
Direct Project, Model A Sponsor is liable for everything Sponsor reports revenue and expenses Sponsor OWNS project Project may have advisory committee Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
Legal Steps Project director or advisory committee establishes a contract with sponsor. Sponsor’s board has already approved a sponsorship program or approves now. Fundraising done in name of sponsor. Sponsor receives grants, donations into project fund account, pays costs directly. Copyright 2010, Adler & Colvin
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Pre-Approved Grant, Model C
Project belongs to grantee Project is in a separate legal entity Project personnel work for grantee Charitable contributions go to sponsor first Copyright 2010, Adler & Colvin
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Pre-Approved Grant, Model C
Grantee is liable for project Sponsor reports contributions in and grants out Grantee reports grant in and expenses out Sponsor retains “variance power” (discretion and control) over funds Copyright 2010, Adler & Colvin
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Pre-Approved Grant – 7 Steps
Written grant proposal from project Sponsor evaluation of proposal Sponsor Board approval Written grant agreement Proper solicitation of funds Proper accounting for funds Reports from grantee to sponsor There are 7 seven steps we normally recommend to make a pre-approved grant relationship legitimate. Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
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How Could Anything Go Wrong?
Copyright 2010, Adler & Colvin
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Problems Common to Both Models
Sponsor is “absent,” or “We are just using their 501(c)(3)” No written agreement Confusion with DAF or other programs Sponsor mischaracterizes relationship Donor confusion about recipient Copyright 2010, Adler & Colvin
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Direct Project Problems
Sponsor fails to plan for liability No pre-nuptial agreement Dealing with the break-up Ownership of intellectual property Project spends more than it has Organizing an advisory committee Treatment of employees Copyright 2010, Adler & Colvin
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Pre-Approved Grant Problems
Failure to pre-approve the grant relationship Grantee fails to report income Ownership of intellectual property Grantee fails to report back to sponsor Sponsor pays grantee’s bills directly Lack of professional grants management Copyright 2010, Adler & Colvin
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Copyright 2010, Adler & Colvin
Resources Fiscal Sponsorship: 6 Ways To Do It Right, 2005 edition National Network of Fiscal Sponsors: Copyright 2010, Adler & Colvin
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