1. Fiscal Sponsorship Doing it Right
Greg Colvin
Adler & Colvin
San Francisco, California
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2. 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.
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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.
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4. 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.
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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.
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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.
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Direct Project, Model A
Project belongs to sponsor
Project is not a separate legal entity
Project personnel are employees / volunteers
Contributions belong to sponsor
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Direct Project, Model A
Sponsor is liable for everything
Sponsor reports revenue and expenses
Sponsor OWNS project
Project may have advisory committee
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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.
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10. 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
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11. 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
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12. 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.
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14. How Could Anything Go Wrong?
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15. 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
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16. 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
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17. 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
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Resources
Fiscal Sponsorship: 6 Ways To Do It Right, 2005 edition
National Network of Fiscal Sponsors:
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