There is a terrific article on fiscal sponsorship written by Melanie Beene, President and CEO of Community Initiatives*, in the Fall 2010 issue of GIAreader (published by Grantmakers in the Arts).  In "Fiscal Sponsorship is Maturing as a Field," Beene describes the evolution of the practice of fiscal sponsorship and emergence of a set of best practices developed by the National Network of Fiscal Sponsors.

As the field has matured, donors, foundations, and other grantmakers have become increasingly confident in making gifts to projects through responsible fiscal sponsors.  In fact, a gift to a strong fiscal sponsor, like Community Initiatives, may provide greater comfort to a funder than a gift to an independent charity without a comparable administrative infrastructure and professional team of financial and human resources experts focused on compliance.  Among the best practices adopted by such fiscal sponsors:

• The fiscal sponsor fulfills all legal, tax and regulatory requirements of philanthropic and charitable nonprofit organizations and complies with the letter and the spirit of all laws.
• The fiscal sponsor manages all funds, assets and other resources under its control with a high degree of responsibility, integrity, transparency and accountability.
• The fiscal sponsor manages all administrative duties and responsibilities professionally and with a high degree of integrity and accountability.
• The fiscal sponsor’s board of directors governs ethically, avoiding conflicts of interest in conducting the affairs of the organization and in carrying out its legal, fiduciary and policy making responsibilities. This active and engaged board of directors serves as the ultimate governing body of all fiscally sponsored projects.
• The fiscal sponsor expects project leaders to adhere to clearly stated standards of ethical conduct, organizational policies and operational procedures. 

 

Beene lists eight questions funders should ask their grantees who use fiscal sponsors:

1. Do you have a written agreement with your fiscal sponsor?
2. Do you understand the implications of the model of fiscal sponsorship your project is using?
3. What other services beyond use of the sponsor's tax-exempt status do you receive?
4. What fees are you being charged?  When is it taken?  Is [the fee on unexpended funds] refunded when you transfer fiscal sponsors or terminate the relationship?
5. Do you get regular, timely, accurate financial accounting of your sponsored funds?
6. Does your fiscal sponsor provide programmatic and financial oversight of your project?
7. Does your fiscal sponsor file your grant reports with your grantors?
8. Does your fiscal sponsor follow the National Network of Fiscal Sponsors' guidelines for best practices?

There remain some funders with blanket policies against funding fiscally sponsored projects.  While there may have been justification for this in the past, funders should recognize that responsible fiscal sponsorship creates administrative efficiencies, allowing project leaders to focus on creating and running effective programs, and an additional layer of experienced professional oversight.  Startup projects are often better positioned by using a fiscal sponsor as an incubator, and it would be regretful if foundations did not understand this and failed to fund some of these projects because they chose not to start independent charities.  Fiscal sponsors paired with social entrepreneurs and visionaries can be a powerful formula for innovation, impactful programs, and social change.

* Disclosure:  I serve on the board of directors of Community Initiatives (formerly, CIF of the San Francisco Foundation).  Among the organization's original founding directors are two icons in the nonprofit sector:  Jan Masaoka and Greg Colvin.