Nonprofit 411: The What, Why and How of Fiscal Sponsorship

By Jonathan Spack, Executive Director, Third Sector New Englandjspack

February 19, 2013

Recently, Third Sector New England (TSNE) became the new home for the National Network of Fiscal Sponsors (NNFS). As per a rotating leadership structure, TSNE takes over as chair of NNFS from San Francisco-based Community Initiatives through December 31, 2014.

“Wow, congratulations,” many would say, “but what’s fiscal sponsorship again?”

Third Sector New England has been fiscally-sponsoring nonprofit initiatives since 1959. With this practice around for quite some time, why is fiscal sponsorship still such a poorly-understood and underutilized option for both incorporated and unincorporated nonprofits?  Many of our friends in the nonprofit sector are unfamiliar with the concept or have little idea of how it works. If you’re in that category, this article will provide you with a general understanding of fiscal sponsorship: What it is, how it works, what makes an effective fiscal sponsor partnership.

So what is fiscal sponsorship, anyway?

Fiscal sponsors, like Third Sector New England, play a vital role in 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 associated with obtaining and maintaining a 501(c)(3) designation. Incorporated nonprofits can also benefit from fiscal sponsors like Third Sector New England.  In today’s competitive climate, even financially healthy 501(c)(3) organizations are discovering that a partnership with the right fiscal sponsor can effectively reduce administrative costs and enhance human resources, accounting and legal compliance support along with robust liability insurance coverage to manage risk.

How does it work?

Fiscal sponsors are 501(c)(3) nonprofit organizations which provide a tax-exempt home and certain supportive services to mission-aligned groups, programs, coalitions and projects,  giving them the much needed space to pursue their mission and programmatic objectives. 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.

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, programs are semi-autonomous. They 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. However, many sponsors will advance funds on commitments yet to be collected such as pledged funds and reimbursable grants.  In addition, an appropriately structured Memorandum of Understanding or Fiscal Sponsorship Agreement between the sponsor and project should clearly stipulate that all assets developed with project funds are to be used exclusively for that project and if the project elects to terminate the relationship, all funds and assets earmarked for the project will go to its new home.

Who needs a fiscal sponsor?

Groups who seek out fiscal sponsors are diverse. Many are young and still finding their way, examining their viability in terms of attracting members, funding and the host of other factors needed for longer-term survival. That was the case with Massachusetts Nonprofit Network, which initially partnered with TSNE, allowing them to hit the ground running under their sponsor’s supportive umbrella until MNN had the capacity to spin off and operate independently. Some are well-established, but do not ever wish to institutionalize their operations, opting to go into and out of existence with as few bureaucratic headaches as possible. Others are content to remain fiscally-sponsored indefinitely as the value the relationship adds outweighs the benefits of going it alone.

With a strong, experienced fiscal sponsor, change agents 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.

Learn more about partnering with a fiscal sponsor and meet some of Third Sector New England’s fiscally-sponsored projects at http://www.tsne.org/fiscal_sponsorship.

About Third Sector New England:

Third Sector New England provides management and leadership resources to help nonprofits support healthy, just communities. With a staff of dedicated non-profit professionals, TSNE is an effective fiscal sponsor, convener, consultant and grantmaker, offering a unique blend of capacity-building programs and services. Our work also complements that of the funding community and other capacity builders.

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