Supporting organizations as they work to create and build out a fiscal sponsorship practice

Written By Allyson Winburn

What is a Fiscal Sponsor? 

From the National Network of Fiscal Sponsors:

Fiscal sponsorship is when a nonprofit organization (the “fiscal sponsor”) agrees to provide administrative services and oversight to projects, groups and/or individuals engaged in charitable work that relates to the fiscal sponsor’s mission. Fiscal sponsors also assume all of the legal and financial responsibility for the project’s activities. Fiscal sponsors are tax-exempt according to the IRS, are able to receive charitable contributions and donations for the project,and have the infrastructure to ensure compliance with all federal and state laws. 

Typically, a fiscal sponsor will provide operational and administrative support to projects, including:

  • HR Services

    • Hiring project staff into their entity

    • Administering payroll

    • Providing benefits

  • Compliance

    • Ensure federal and state compliance

    • Often have legal teams who can support the projects 

  • Finance

    • Receive donations, grants, and incoming funds on behalf of the project, under their tax-exempt status

    • Provide financial accounting for those funds 

    • Support in the financial reporting process to donors 

  • Operations

    • Support projects in administering grants to other charitable organizations

    • Support in drafting contracts or purchase agreements so projects can engage with consultants and/or other vendors to further their work and mission 

Benefits to creating a fiscal sponsorship Practice

  • Supporting multiple charitable initiatives: Organizations can support a variety of mission aligned initiatives by providing them with the resources and infrastructure required to run a charitable project. 

  • Rapid Response: In an ever changing political climate, setting up an independent 501(c)3 project can be time consuming. Fiscal sponsors can often deploy much needed resources and funds to the field faster and more efficiently. 

  • Income generation: Organizations often charge an administrative fee to fiscally sponsored projects, and this can help offset the costs associated with providing those operational services. This can allow for more investment into operational infrastructure, and provide a revenue stream for the fiscal sponsor itself. 

  • Share knowledge and expertise: Starting a new 501(c)3 entity can be time consuming and require significant investment in time and resources. Fiscal sponsors can often share their knowledge, expertise, and best practices for operating a nonprofit with those who might be newer to the space. 

  • Fill a local gap: Certain regions or states have a need for fiscal sponsorship services as there are numerous charitable initiatives that could benefit from operational infrastructure and support. 

The first step in establishing a fiscal sponsorship practice is to build out a clear strategy for the organization. Many of the gaps and challenges we have seen in fiscal sponsors stem from a lack of clarity around what the fiscal sponsor wants its offerings to be to projects or, in other words, what fiscal sponsorship means to the organization. Without a lack of strategic clarity, this can lead to leadership operating off of different assumptions on what is/should be included in the fiscal sponsorship support to projects and what projects are brought into the practice.

Examples of what the strategy should answer include how large or small of a practice the organization wants to have, what the “ideal” project type is, whether or not the fiscal sponsor should offer capacity building to project leaders, if fundraising support should be offered, if support for advocacy and lobbying can be provided, and who internally is responsible for managing the relationships with projects. Before any projects join the organization under the fiscal sponsorship model, there is a critical need for clarity, as it serves as the foundation for the organization’s fiscal sponsorship practice. 

The Ops Collective worked with several organizations to help develop and refine their fiscal sponsorship strategy, before jumping into any implementation work.

This allowed organizations to define and embed a coherent and forward-looking strategy, before they brought on any fiscally sponsored projects. We facilitated conversations with key stakeholders (board members, key staff, other consultants) to formalize the fiscal sponsorship strategy, helping to answer some of the following questions:

  • What does fiscal sponsorship mean to the organization? 

  • Where does support for projects begin and end?

  • What is the ideal portfolio size and project makeup for the organization? 

  • Will the organization be engaging in both Model A and Model C fiscal sponsorship? Or just one of the two? 

  • How does the organization differentiate itself from other fiscal sponsors?

From there, we were then able to build out a plan for and support with implementation. This included identifying the systems, tools, staff capacity, staff trainings, and financial resources required to run a sustainable fiscal sponsorship practice, all with a manageable timeline in mind. We helped identify the right accounting, legal, and IT partners (as needed), and supported in building out some of the key infrastructure pieces required for fiscal sponsorship, including:

  • Developing financial manuals and SOPs (payments, expense reimbursements, contracting, accounting, etc.) 

  • Developing key policies (whistle blower, anti harassment, conflict of interest, document retention, expense reimbursement, etc.) 

  • Developing Advisory board policies and guidance for projects 

  • Developing an Employee Handbook for fiscally sponsored projects

  • Getting set up with a Professional Employment Organization for payroll and benefits management 

  • Supporting in the creation of fiscal sponsor agreements for projects, contract and vendor agreement templates, and subgrant agreement templates. 

For more work like this:

Allyson Winburn
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Develop the strategy and strengthen operations of an established fiscal sponsor