Being a Good Fiscal Sponsor

Given the current political environment & uncertainty, folks that have their own 501(c)(3) or (c)(4) may be starting to see an increase in new or temporary projects looking to be fiscally sponsored.

Fiscal sponsorship can be a lifeline for the movement and a way to move adjacent work forward without the wait (and again, uncertainty) of an IRS determination. But being a good fiscal sponsor is more than just passing through donations.

It’s about stewardship, trust, compliance and partnership.

If your organization serves as (or is considering becoming) a fiscal sponsor, here are a few highlights on how to do it well without burning out and assessing your risk.

Be Clear About What You Are (and Aren’t)

The fastest way fiscal sponsorships can go sideways is confusion & misunderstanding of roles.

From day one, be explicit about:

• The sponsorship model you’re using
• What services you provide (financial management, payroll processing, vendor management, development reporting, legal advice, compliance, HR, insurance, etc.)
• What you don’t provide (program management, fundraising strategy, budgeting, projections, marketing)

It’s really important to have this understanding documented in a legally vetted agreement between your org & the group you are fiscally sponsoring.

Get the Legal and Financial Basics Right

The requirements that you as the fiscal sponsor need to keep in mind are dependent on the sponsorship model you’re using. Some highlights of your responsibilities could include:

• Ensuring funds are deposited into accounts that you as the sponsor control
• Reviewing and approving spending according to relevant tax & audit requirements, along with c3, c4, lobbying rules/limits
• Obtaining proper documentation for grants, donations, and restricted funds
• Timely financial reporting for projects, including net asset balances
• Compliance with IRS rules, state & local regulations
• Confirmation that the project’s mission is aligned with your IRS-documented charitable mission

Be Honest About Your Capacity – And Make Changes If Needed

You don’t need a huge operations team—but you should do an assessment of your entire operations department(s) to ensure that you can cover your bases. Again, it will depend on the type of fiscal sponsorship so your assessment should include:

• An understanding of the fiscally sponsored project type/agreement
• Clear & documented internal controls
• A workplan for your operational processes and how adding a fiscally sponsored project changes or puts pressure on those timelines
• Written policies for your fiscal sponsorship program
• Be sure to include assessments of other areas of risk that may be under your responsibility like IT, HR, legal/compliance

If your systems need support, take the time for these fixes before adding fiscally sponsored projects.

Being a fiscal sponsor can be incredibly rewarding with the right vetting and processing. Be sure to reach out if you have any questions!