Comprehensive Fiscal Sponsorship

George Brighten is an Intern at Social Enterprise Associates. He is a junior at the University of Pennsylvania, where he studies Political Science and Public Policy.

Some charitable programs (usually birth- or early-stage) do not have the legal status necessary to receive grants from foundations, individuals and government agencies. These programs might seek low-cost financial and administrative services, expertise, the freedom to focus on program delivery, funding sources and ultimately the opportunity to test the viability of their model in conditions of lower risk.

What is comprehensive fiscal sponsorship?
Think of comprehensive fiscal sponsorship as the non-profit form of the business incubator model. It allows charitable programs to leverage the financial and administrative platforms of a non-profit organization by sharing in its legal and tax-exempt 501(c)(3) status.

This status also provides a path to capital sources, allowing charitable programs to solicit grants from individuals, foundations and other funding institutions. In return, the sponsors receive modest payment - between 5-14% of the sponsoree's gross revenue - and some sovereignty over a program devoted to furthering an identical or similar mission.

Once the sponsored program matures, it either registers as an independent non-profit organization (in which case the sponsor plays a role in its long-term operation) or, if the program has met its target need, ceases operations.

For more information, see this report from the Tides Center, a San Francisco based non-profit organization which provides comprehensive fiscal sponsorship to charitable programs.

Why choose comprehensive fiscal sponsorship?
While grant supervision is one perk of comprehensive fiscal sponsorship for the sponsoree, access to the sponsor's suite of financial management, human resources management, information systems support and capacity building services is the most important short-term benefit. In this way, the sponsor provides economies of scale to the operating model of the sponsoree. This drives efficiency and allows these programs to maximize the time and capital allocated to program delivery and bypass time-consuming administration tasks or labor-intensive fundraising activities.

Consider insurance. Programs can lower this cost by sharing a sponsor's existing insurance relationship and administrative resources to manage the contract. The sponsor's unemployment benefits and health and retirement plans can be likewise applied to the sponsored project in the same manner as the organization's other employees.

Other services range from the administration of payroll, tax reporting and financial audits, to access to supply-chains, office space, training, fundraising assistance, and marketing services, among others.

In the long-term, fiscal sponsorship allows charitable programs to prove both the existence of its target need and the viability of the model that it uses to address this need. The program may be more efficient and could grow faster than a program established without fiscal sponsorship. In a grant-making climate that is biased against nascent, unproven and unfunded projects, it will also be more competitive in the eyes of grantmakers and investors.

Why provide fiscal sponsorship?
The incentive to provide fiscal sponsorship goes beyond the 5-14% revenue share that sponsors receive from sponsored projects. For example, by providing fiscal sponsorship a non-profit can test a new approach to fulfilling its target need and possibly scale its social impact.

Growing popularity
Fiscal sponsorship has become a common ancillary activity for non-profit organizations involved in human service, environmental and artistic endeavors. There are nearly 200 fiscal sponsors across North America that collectively manage 9652 projects and $1 billion in funding. Thousands of programs in the U.S. have chosen fiscal sponsorship over registration as a non-profit organization.

While some organizations provide fiscal sponsorship as a primary or secondary organizational activity, others act exclusively as fiscal sponsors (see figure below). California has been particularly pioneering in this regard, with the Tides Center, Community Initiatives, Community Partners, and Earth Island Institute all serving this purpose.

Figure source: "Fiscal sponsorship: the state of a growing service", Trust for Conservation Innovation (3).

It is not a watertight answer to the resource crisis of the non-profit sector. Questions remain over the legitimacy of sponsored projects ("Would a project be eligible for non-profit status without sponsorship?" critics ask) and whether the reduced autonomy of the sponsored project compromises its integrity. But in a resource-strapped environment, fiscal sponsorship is one of the most promising solutions yet. Few tools have similar potential to foster social innovation, community leadership, collaboration and fiscal efficiency in addressing social problems.

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