What the heck is fiscal sponsorship?
You may have heard or read that EAL/LA is “fiscally sponsored” – but perhaps you are not familiar with what that really means: EAL/LA is not an independent non-profit organization; instead, it is a “project” of an umbrella organization that holds its funds, provides certain operational services, and stewards its growth.
What does Community Partners have to do with us?
EAL/LA’s fiscal sponsor is Community Partners, which supports over 120 projects, primarily in the Southern California area. EAL/LA became associated with Community Partners upon receiving funding from the James Irvine Foundation. When the Foundation required that its grant be made to an established 501(c)(3) – which EAL/LA was (and is) not — Community Partners offered a solution: as EAL/LA’s fiscal sponsor, Community Partners could receive the grant funds and administer them as directed by EAL/LA. Our association with Community Partners imparts tax benefits to us and ensures compliance with applicable regulations. In addition, Community Partners supplies knowledge and support, provides financial oversight and budget reports, and hosts professional development opportunities. For its services, Community Partners receives a small fee taken as a percentage of EAL/LA’s annual budget.
Pros and cons
Fiscal sponsorship can be a good option for projects and organizations that are not at a stage where incorporation as a 501(c)(3) makes sense but that are developed enough to support activities that would benefit from or even require status as a tax-exempt organization. Becoming an independent non-profit organization is sometimes more than small organizations can or want to take on; there are many registration and reporting requirements, as well as managerial and liability issues, that a fledgling organization may not have the infrastructure to handle. Because fiscal sponsors have 501(c)(3) status, their “projects” – such as EAL/LA — are able to take advantage of the laws that govern non-profits without the burden of incorporating themselves. Many fiscal sponsors consider themselves to be “incubators” and offer training and other resources to help their projects’ development.
However, there are potential downsides to fiscal sponsorship. Fiscal sponsorship is not free; though rates vary, fiscal sponsors take a percentage of their projects’ funds to cover their own programming and operating costs. Fiscal sponsorship may not be the most flexible model either, as all contractual and financial transactions by an organization are likely to require the approval or involvement of its fiscal sponsor. And, unfortunately, there has been at least one fiscal sponsor that shut its doors abruptly, leaving its projects without their funds. The Los Angeles Times detailed this event in an article last month: Missing Money. (Another article with additional details and reflections on the fiscal sponsorship industry appeared in the Non Profit Quarterly: Fiscal Sponsorship Collapse).
Bottom line: are we in good hands?
Although there had been no indication at all of any malfeasance on the part of Community Partners – and, in fact, Community Partners quickly issued a letter of reassurance to all its projects upon the publication of the LA Times article – several members of the Leadership Council decided to review Community Partner’s audited financial statements for last fiscal year, which are available on CP’s website (Reports). Finance Chair Cynthia Pearson, Finance Co-Chair Jen Gorman, and Executive Co-Chair/CP Liaison Kristin Runnels met to assess the statements earlier this month. Their evaluation confirmed that EAL/LA appears to be in good hands with Community Partners.
This post was submitted by Cynthia Pearson.