You focus on strategy, program development and fundraising. We’ll take care of the rest.
We provide all the financial, human resources and other core functions nonprofits desperately need and often lack. But don’t make the mistake of thinking we just provide these services only to small start-ups. Our full suite of business services are also in demand among mid-size and larger community projects, too.Think how much more time you could devote to the issue that ignites your passion if only those nagging business issues didn't keep getting in the way. Think of us as an incubator and outsourcing firm that handles the operational headaches.
- What is Fiscal Sponsorship?
- Benefits of Fiscal Sponsorship
- Models of Fiscal Sponsorship
- For Funders of Fiscally Sponsored Projects
- For Those Seeking Fiscal Sponsorship
What is Fiscal Sponsorship?
Fiscal sponsorship is a formal arrangement in which a 501(c)(3) nonprofit organization sponsors a project that may lack exempt status. This alternative to starting your own nonprofit allows you to seek grants and solicit tax-deductible donations under the sponsor's exempt status.
OneOC is legally and financially responsible for all of our fiscally sponsored projects and activities. Projects are not separate entities or affiliated organizations, rather they are a part of OneOC. Because they are an integral part of OneOC and not separate legal entities, projects are able to receive charitable donations and grants available only to tax-exempt organizations.
OneOC fiscal sponsorship provides community projects and initiatives with:
- administrative support
- the opportunity to focus on programs and fundraising during the early stages of their organizational growth
- tax‐exempt status for short-term projects and events
Additionally, OneOC’s Board of Directors has full governing authority, and full legal and fiduciary responsibility, for all projects, employees, and activities of our fiscally sponsored projects. OneOC staff monitors and maintains project finances, human resources, payroll, leases, contracts, and insurance to uphold OneOC’s legal nonprofit status, to ensure all projects follow the IRS regulations, and to maintain compliance with the law.
Benefits of Fiscal Sponsorship
- Generating accounting records and financial reports
- Administering grants and reports
- Check processing and issuance for expenses, W9s and 1099s
- Managing income and disbursements
- Managing outside audits and reviews
- Making payroll tax remittance and filings
- Preparing federal and state annual returns
- Providing receipts and acknowledgements for donations and grants
- Managing all employment and full benefits administration
- Ensuring documentation & compliance
- Overseeing the institution and implementation of personnel policies, procedures and mandated trainings
- Providing comprehensive liability, umbrella, volunteer, employment practices liability insurance
- Ensuring county, state, and federal regulations and contract compliance
- Managing contribution records, reports and acknowledgements
- Providing grant documentation and oversight
- Reviewing grant applications for policy and legal compliance
- Attending key committee and major funder meetings
- Approving fundraising event applications
- Reviewing fundraising events for policy and legal compliance
- Financial management of fundraising event
- Offering trainings for fiscally sponsored projects and access to further training scholarships
- membership discount opportunity through Fiscal Sponsorship
Thank you for all of your help today with policy development regarding Padres en Acción (Kid Healthy) funding to schools. You made this very easy for us!! We appreciate you.
Transparency is critical for us, we wanted sound fiscal policy and management especially with HR, Risk Management and accounting so we utilize the fiscal sponsorship services of OneOC.
Starting a nonprofit and gaining 501(c)(3) tax-exempt status on your own is time-consuming and can be expensive, as is developing the administrative, legal, and financial operations necessary to build and grow a nonprofit. Fiscal sponsorship saves projects time and money by providing tax-exempt status and a shared administrative services. You can become a project as an interim step before creating your own 501(c)(3) organization, or like some of our projects, you can benefit from the efficiencies and cost savings of our shared platform for an extended period of time. Working under the umbrella of a fiscal sponsor makes sense for projects that are just starting out, short-term or one-time events, or collaborative efforts.
Click here to view a comparison chart between a 501(c)(3) nonprofit, private foundation, and fiscally sponsored project
A well-run nonprofit can expect to spend between 20-30% of annual revenue on administrative and overhead expenses. For the comprehensive suite of back-office services, including financial, HR, risk management, and capacity-building support that OneOC provides, projects pay only six to ten percent (6-10%) of their annual revenue. The range depends on size of project and human resource needs.
OneOC focuses solely on accelerating nonprofit success in Orange County. We are passionate about nonprofits and strengthening Orange County, and we seek to support those who share our vision. Our projects benefit from being part of our 50+ year history; and at the same time, we are small enough to offer customized, individual attention with excellent service yet large enough to provide a full array of services to help you build your organization.
Models of Fiscal Sponsorship
There are several models of fiscal sponsorship. The most comprehensive legal discussion of these can be found in the book Fiscal Sponsorship: 6 Ways to Do It Right (Study Center Press, 1993, 2005) by attorney Gregory L. Colvin.
For practical purposes, the NNFS has articulated the two most-frequently used models of fiscal sponsorship:
In a Comprehensive Fiscal Sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor, and is a fully integrated part of the fiscal sponsor that maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities. This model of fiscal sponsorship is particularly valuable when a project has employees.
In a Pre-Approved Grant Relationship Sponsorship, the fiscally-sponsored project does not become a program belonging to the sponsor, but is a separate entity responsible for managing its own tax reporting and liability issues. In addition, the sponsor does not necessarily maintain ownership of any part of the results of the project’s work—ownership rights may be addressed in the fiscal sponsor agreement and could potentially result in some form of joint ownership. The sponsor simply assures that the project will use the grant funds received to accomplish the ends described in the grant proposal. This is the model of fiscal sponsorship primarily utilized in the arts.
Funders work with fiscal sponsors to achieve many of their goals. Over the years, corporate, foundation and individual donors have partnered with fiscal sponsors to create and fund projects, develop new grant making programs and funding collaboratives.
Projects partner with fiscal sponsors in order to spend more time on mission-related work and fundraising. For funders, this partnership offers a low-risk way to test new ideas by providing fledgling projects with a solid infrastructure with a high level of regulatory and financial oversight. Increasingly, fiscal sponsorship is viewed by project leaders and funders alike, as a sustainable, cost-effective way to manage a charitable initiative.
Coalitions & Funding Collaboratives
Funder collaboratives partner with fiscal sponsors to test innovative funding solutions. This partnership offers groups a neutral home to work together on cross-sector issues and solutions that may not fit neatly into a strictly defined funding area. The flexibility of the fiscal sponsorship model also allows for short-term collaborations, and partnerships between funders and nonprofit organizations. Staff and funds can have a neutral home while funding partners provide oversight and guidance to programs and initiatives.
- Is there an alignment between your mission and your fiscal sponsor’s mission?
Mission alignment is a pre-requisite for any fiscal sponsorship relationship.
- Is your fiscal sponsor financially sound and does it follow the appropriate standards of financial management, transparency, and integrity?
Financial principles of accountability, transparency, and integrity are the cornerstones of any fiscal sponsorship relationship. It is crucial for the fiscal sponsor to comply with applicable regulations, including Generally Accepted Accounting Principles (GAAP, guidelines for financial accounting and reporting), and Circular A-133 (audit requirements for nonprofits). To evaluate a fiscal sponsor’s compliance with financial standards, the grantee should ask the following questions:
- Are the fiscal sponsor’s financial records accessible on demand?
- What written policies provide checks and balances to safeguard funds?
- What system does the fiscal sponsor use to monitor program expenditures and activities?
- Does the fiscal sponsor arrange for an annual audit of its finances overseen by an independent audit committee?
- Does the fiscal sponsor post its 990 and the results of its annual audit on its website?
- Do you have a written agreement with your fiscal sponsor?
Without a written sponsorship agreement or memorandum of understanding, the fiscally sponsored project has no recourse especially since the sponsor must retain sole authority over charitable funds. It is recommended that the funder request a copy of the agreement with the other documents requested at the time of application.
- Do you understand the implications of the model of fiscal sponsorship your project is using?
While Gregory Colvin’s Fiscal Sponsorship: 6 Ways to Do It Right outlines six ways to structure the fiscal sponsorship relationship, in practice, the vast majority of projects are either Comprehensive Fiscal Sponsorship (or “Model A. Direct Project,” in Colvin’s terminology) or Pre-Approved Grant Relationship (“Model C”). These different models involve different legal relationships, different liabilities for both sponsor and fiscally sponsored project, different ownership of the project results, and different tax filing responsibilities. They also have different models of best practices as indicated in the National Network of Fiscal Sponsors Guidelines.
Arts activities generally use the Pre-Approved Grant Relationship model (Model C), but they can also use other models. In Model C, foundation grants and donations may be the only funds going through the sponsor (and therefore given oversight). Earned revenues from the same project activity will not necessarily show up on the project budget the fiscal sponsor produces. These revenues are not required to go through the fiscal sponsor in a Model C relationship (although in many cases they do, especially when the fiscally sponsored project wants all its activity represented in one place). One reason some arts-based fiscally sponsored projects prefer this model of fiscal sponsorship is to avoid a fee on their earned income.
The Pre-Approved Grant Relationship model of fiscal sponsorship is widely misunderstood and easily abused as a “conduit” when the fiscal sponsor fails to exercise the requisite “discretion and control.” The key element to avoid in fiscal sponsorship relationships is the creation of a “pass-through” or “conduit” arrangement. The fiscal sponsor must exercise “variance power” or independent “discretion and control” over the fiscally sponsored project for the relationship to pass IRS muster.
Projects that utilize Comprehensive Fiscal Sponsorship (Model A), become a part of the fiscal sponsor's organization and operate as a program as the fiscal sponsor. A comprehensive fiscal sponsor assumes all legal and fiduciary liability for the project's activities, all employees are employed by the fiscal sponsor, and all monies must be held by the fiscal sponsor as the only legal entity of record.
- What other services does the fiscally sponsored project receive?
Fiscal sponsors typically provide a variety of services beyond tax-exempt status, which will vary among sponsors, but can include accounting, grants management, human resources, payroll and benefits administration, insurance, office or meeting space, group purchasing, professional development workshops and consultations, and opportunities for outreach, marketing, and publicity. With the Pre-Approved Grant model, however, there can be no employees and the sponsor generally does not insure the project. If “use of the tax-exempt status” is the only service provided and there is insufficient oversight, you should be forewarned that the IRS may deem this a disallowed pass-through transaction for which there is a penalty to the donor.
- What does fiscal sponsorship cost?
The cost structure should be spelled out in the fiscal sponsorship agreement or policies. Sponsors' administrative allocations can range from a token amount to 25 percent, but an average is around 6 - 10 percent. Some fiscal sponsors allocate these costs to revenues as they are received; others add the allocation to expenses as they are incurred.
An issue that comes up when a fiscally sponsored project wishes to change sponsors is whether the administrative allocation on the unexpended funds will be returned. There is no uniform agreement on this question in the field, but it is useful for the project to know its sponsor’s practice. In any event, how the relationship between the fiscally sponsored project and the fiscal sponsor is terminated should be spelled out in the initial agreement.
- Do you get regular, timely, accurate financial accounting of your sponsored funds?
Without such accounting, your grantee does not have a reliable fiscal sponsor.
- Does your fiscal sponsor provide programmatic and financial oversight of your project?
This is another way of inquiring whether the fiscal sponsor is exercising appropriate “discretion and control” of the donated funds. Typically, the sponsor will not be involved with artistic or programmatic decisions but will verify that the project is being carried out according to the plans laid out in your grant proposal and the FSP’s contract with the sponsor.
- Does your fiscal sponsor file your grant reports with your grantors?
The fiscal sponsor is the grantee of record and should be tracking, submitting (or assuring submission), and maintaining copies of any required reports. As a funder, your legal relationship is with the sponsor, not the fiscally sponsored project, so it serves you to know how the fiscal sponsor operates.
- Does your fiscal sponsor follow the National Network of Fiscal Sponsors’ guidelines for best practices?
While the NNFS only issued its best practices guidelines in the Spring of 2010, they are the culmination of years of work and discussion among fiscal sponsors of all sizes, from around the country, and representing a variety of disciplines. The best way for these guidelines to become widely disseminated, and more important, widely followed, is for the philanthropic community to ask its grantees to adhere to them.
Part of the impetus in the fiscal sponsorship field to codify these “best practices” was to help funders understand the fiscal sponsorship relationship and to weed out those sponsors (which are unfortunately still out there) who give the field a bad name by merely “passing through” or laundering the funder’s grant money.
Fiscal Sponsorship is merely a means to incubate new projects—successful projects eventually become their own nonprofit organizations.
Although many start-ups are nurtured and grow under a fiscal sponsor, transition to independent status is becoming the exception rather than the rule. Results from the most thorough survey of fiscal sponsors to date indicate that fewer than half of the projects of large fiscal sponsors have sought to become independent 501(c)(3) nonprofits. The rate of retention is as high as 80-90% with some organizations. Project Directors frequently cite the rapidly shifting regulatory environment and the time administrative processes take from programmatic work as reasons to remain under the umbrella of a fiscal sponsor.
An appropriately structured fiscal sponsorship agreement or Memorandum of Understanding should address the possibility of a split on the front end to avoid complications down the road.
We could increase efficiency and impact by partnering with a reputable fiscal sponsor, but can’t because we’re already a 501(c)(3).
Established 501(c)(3) organizations increasingly partner with fiscal sponsors as they present an attractive option; offering a more efficient back office and a “safe haven” for merger-leery nonprofits, preserving their missions while providing high-level administrative support and the time and space to regroup. Essentially, when a 501(c)(3) is fiscally sponsored, all operations are carried out and reported under the fiscal sponsor while the existing 501(c)(3) “hibernates.”
A Fiscal Sponsor is synonymous with Fiscal Agent or Fiscal Conduit.
A fiscal sponsorship relationship is the converse of an agency arrangement, in which a principal is in control and directs an agent to carry out activities on its behalf. In Comprehensive Fiscal Sponsorship, the sponsor and the project are both part of the same legal entity and the sponsor must exercise final authority by only signing off on contracts and other encumbrances that further the charity’s exempt purposes and comply with all applicable laws. In a Pre-Approved Grant Relationship Fiscal Sponsorship, the fiscal sponsor exercises expenditure responsibility for all charitable funds.
A Fiscal Sponsorship Partnership will hamper a project's programmatic freedom.
Effective fiscal sponsors delegate certain operational authority to Project Directors, providing the project with the autonomy needed to pursue its purposes. To comply with IRS dictates and assure accountability, the sponsor plays the role of steward, allowing a great deal of project autonomy while exercising final authority by only signing off on contracts and other encumbrances that further the charity’s exempt purposes and comply with all applicable laws.
Fiscal Sponsorship is the same as a Donor Advised Fund
A review of the differences between donor advised funds and fiscal sponsorship makes it apparent that these are very different tools with vastly different purposes. A donor advised fund is a charitable giving vehicle administered by a public charity and created to manage charitable donations for a single organization, family, or individual to multiple projects or grantees. By contrast, fiscal sponsorship allows a single charitable project to leverage donations, grants, and contributions from multiple supporters.
I want to submit a grant proposal by Friday – I had better get a fiscal sponsor pronto!
Because of the total assumption of legal and financial liability, sponsors must exercise great care in screening potential new projects. Likewise, any group searching for a fiscal sponsor should perform their own due diligence to ensure they are partnering with a reputable, stable organization. This process should not be rushed and may take weeks or even months to finalize.
The most important criteria when entering into an agreement with a fiscal sponsor is mission fit. The mission of your project must further the mission of the fiscal sponsor. It is also important to remember that the fiscal sponsor must exercise control of the funds that it receives on behalf of the project and must ensure that the project is providing a charitable purpose that is in alignment with the fiscal sponsor’s tax exempt status.
As a project, you need to know the scope of your work so you can select a fiscal sponsor that offers the appropriate services for your project's needs. For example, if your project will have employees, you will likely require a Comprehensive fiscal sponsor, and if you are working in the
The fiscal sponsor relationship requires ongoing active participation from both parties. Regular communication, attention to detail, and holding each other accountable are critical. A project under sponsorship is responsible for understanding and conducting ethical business practices consistent with IRS regulations, all applicable laws, funder restrictions, and fiscal sponsor policies and procedures. Projects typically carry out programmatic activities that contribute or relate to the mission of the fiscal sponsor. If a project’s mission changes, it is imperative that the new mission also have a charitable purpose that remains compatible with that of the sponsor.
Projects are responsible for managing the day-to-day operations of their project and are typically responsible for fundraising to sustain their work. Projects share responsibility for careful financial management of their project. When monthly financial statements are provided, it is the project’s responsibility to read them carefully and make sure there are no errors. While fiscal sponsors handle insurance differently, most will require projects to participate in and contribute to business and liability insurance coverage under the fiscal sponsor's plan.
Projects and their fiscal sponsors must communicate openly and directly, transfer information in a timely and complete manner, and develop systems that are compatible and mutually-supportive. Regular communication and full disclosure of project activities are critical to risk management. The relationship between the project and the fiscal sponsor continues only when both the project and the fiscal sponsor agree that it is mutually beneficial to continue the relationship. Clear communication is also key at the end of the relationship—projects must let a sponsor know as soon as they are considering closing down or spinning off their project.
© 2017 National Network of Fiscal Sponsors (NNFS)
- How soon can my project be sponsored?
This depends on the fiscal sponsor and on the extent of your current financial and contractual relationships. Each fiscal sponsor has a process for approving new projects, and can explain that to you. In addition, you will need to transfer (“assign,” in legal language) or terminate your existing contracts. Grant funds which have not been fully spent out will need the permission of the funder to be moved to the new sponsor.
- How much do you charge?
To cover the costs of their services, most fiscal sponsors add an administrative allocation to your expenses or a percentage to the revenue deposited. This is usually calculated as a percentage of either project revenues or expenses, and should be part of your written agreement with the sponsor. These percentages vary depending on the types of services included, requirements of the project, the sponsor’s policies, and other factors, but in general the range is between 5% and 15%. It is common for fiscal sponsors to charge a higher percentage to administer government grants and/or projects with staff being hired.
- We’re thinking of applying for our own 501(c)(3) in the next 6 months. Are you okay with that?
One of the main benefits of fiscal sponsorship is ease of entry and exit. Some projects may choose to be sponsored for an interim period while they consider the pros and cons of independent incorporation; others may remain as sponsored projects indefinitely. (Note: studies have shown that the financial break-even point for independent status vs. fiscal sponsorship is an annual budget of approximately $2 million). Experienced fiscal sponsors have well-tested processes for intake and spin-off and will assist projects with those transitions, but be sure to discuss this with your fiscal sponsor during the intake process.
- How much control will our project have over the way our money is spent?
It is the responsibility of individual projects to raise funds, prepare annual budgets, and design and carry out their programs. You determine how your money can be spent. Fiscal sponsors maintain internal control and compliance systems to assure that adequate funds are available and are allocated properly according to the approved budget. In addition, there are a few constraints, which are pretty much the same constraints you are bound by even if you are not fiscally sponsored:
- Expenditures have to comply with the terms of grants and contracts you have received, as stipulated by the foundation or awarding agency.
- Expenditures have to comply with laws, regulations and accounting standards governing the use of nonprofit funds.
- If we get funding up front but don’t spend it down right away what happens to the interest?
Fiscal sponsor policies vary regarding interest on advance funding. Some sponsors retain the interest to help cover their administrative costs; others reserve it for the use of the project.
- What services do you provide in addition to accounting?
All projects of a comprehensive fiscal sponsor are legally part of that sponsor’s mission-related activities. They therefore fall under the sponsor’s Chapter 501(c)(3) public charity status, and receive financial management services, payroll and benefits administration, employee relations assistance, liability and other insurance, inclusion in the annual audit and other technical assistance in the same way as other programs within a nonprofit organization.
In a Pre-Approved Grant Relationship, the sponsor is only responsible for charitable funds and the project maintains a separate legal entity for employment and liability purposes.
In addition to these basic services some sponsors provide a suite of additional services (consulting, executive coaching, IT services, meeting space, etc.) either at no cost or for an additional fee.
- Our program manager doesn’t need fringe benefits and we have been paying her as a consultant. Are there any problems with that?
Possibly. The Internal Revenue Service has published guidelines for determining if an individual should be paid as a benefited employee or an independent contractor. Many states have their own rules which can often be even stricter. This decision is a matter of law, not an individual choice. Companies found to have violated the law are subject to severe penalties. Responsible fiscal sponsors will have a clear policy about this and will communicate it during the project intake period.
- We work with a lot of volunteers/interns/students. How do you handle that?
Many fiscally sponsored projects depend on volunteers and interns to support their work. If you are engaged in a relationship with a comprehensive fiscal sponsor, the sponsor’s human resources staff should be well versed in volunteer stipend and reimbursement related regulations as well as the federal and state requirements for time tracking, criminal record checks, etc. If you are engaged in a Pre-Approved Grant Relationship, the responsibility for volunteer issues will remain with the sponsored project.
- What role does your Board of Directors play as compared to our Advisory Committees?
The Board of Directors of the sponsor has legal oversight and fiduciary responsibility for all sponsored projects. However, fiscal sponsor boards typically delegate strategic and programmatic decisions to projects’ Advisory Committees and senior staff.
- We developed some materials that we sell. Who owns that property now and when and if we leave fiscal sponsorship?
In most comprehensive fiscal sponsorship arrangements, the sponsor is the owner of all assets, including intellectual property, for the duration of the relationship. Well-drafted fiscal sponsorship agreements address this important area and typically provide that while fiscally sponsored, the sponsor will hold the asset for the exclusive benefit of the project and if the project leaves to become an independent 501(c)(3) or operate under a new sponsor, the intellectual property, along with all other assets, will go with the project.
In the Pre-Approved Grant model, intellectual property typically stays with the artist or organization that is engaged with the fiscal sponsor. In this case, the fiscal sponsor is responsible only for the administration of charitable funds, and not of materials that are developed by the project itself.
- Will my project have a separate bank account?
Not if you are entering into a relationship with a Comprehensive Fiscal Sponsor. Revenues and expenses for your project will be accounted for separately within the sponsor’s accounting system but you will not have a separate bank account. You MAY have a separate bank account if you are engaged with a Pre-Approved Grant Relationship Fiscal Sponsor, but this is not universally the case.
Want to get started?
Click Contact Us HERE and choose Fiscal Sponsorship under "Purpose of Inquiry".
View OneOC's current, past, and graduated fiscal projects.