Is Your Nonprofit’s Fiscal Sponsor Doing These Four Things?
Like an umbrella, a nonprofit fiscal sponsor is an established 501(c)(3) that lends its tax-exempt status and administrative backbone, things like accounting and payroll, to a newer group that doesn’t have its own nonprofit status yet. It’s a common shelter arrangement for grassroots projects just getting off the ground.
Recently, we’ve been working with a handful of these startup nonprofits and grassroots community groups, and we keep seeing the same challenges surface, particularly as these smaller groups start to move toward becoming their own 501(c)(3) nonprofits.
Working through these issues with sponsors and sponsored projects reminded me of what many Richmond, Virginia community groups faced when the Enrichmond Foundation closed its doors in 2024. Enrichmond had served as fiscal sponsor for nearly 100 smaller projects. When it shut down, many of those organizations lost access to their funds and had to scramble to establish their own tax-exempt status or find a new sponsor fast.
Across these situations, four practices keep coming up, ones every sponsored project should confirm their sponsor has in place.
1. Your funds should be kept separate from your sponsor’s.
We’ve seen fiscal sponsors commingle their own funds with a sponsored project’s, relying on their finance and accounting team to keep track of who owns what. That’s a risk, not a system. Accountants are not perfect, and commingled funds eventually lead to a mixup, or worse, misuse.
This is exactly what happened at Enrichmond. Their partnership agreements said funds raised by each group wouldn’t be commingled. In practice, Enrichmond was borrowing, in both the literal and figurative sense, from sponsored projects to cover its own operating expenses.
The fix is straightforward. Confirm your sponsor keeps your group’s money in a separate bank account, and make sure you have direct access to those bank statements so you can see what’s moving in and out each month.
2. Your accounting should be separate from your sponsor’s.
Keeping funds in a separate account isn’t enough on its own. You also want separate bookkeeping. That can look a few different ways: your own set of books entirely, a separate QuickBooks Online account for example, an accounting platform built for multiple entities such as Intuit Enterprise Suite or Sage Intacct, or, if you do share one set of books, a structure that cleanly separates each sponsored project from the sponsor itself. In QuickBooks Online, location is usually the best tool for this since it lets you run a balance sheet and profit and loss statement by location.
One group we work with didn’t have this in place with their sponsor. They’ve since had to bring in a forensic accountant to help both organizations reconstruct several years of accounting.
3. Your payroll, cards, and payables should be traceable back to you.
Fiscal sponsorship often makes sense on efficiency grounds. The sponsor already has administrative and financial systems running, the fixed costs are already covered, and the marginal cost of adding a few more people to payroll or a few more bills to payables is low. But efficiency shouldn’t come at the cost of visibility. Confirm your sponsor has set your payroll up as its own distinct department, and that every payable, whether by check, card, or automated clearing house transfer, can be traced back to your group specifically. Modern payables platforms like Ramp and Bill.com make this straightforward to set up.
4. You should be getting regular financial reports.
None of the above works if you aren’t actually receiving and reviewing financial reports from your fiscal sponsor. Look at your balance sheet and profit and loss statement every month. If anything looks off, dig into the underlying transactions. You don’t need to be Ben Wyatt or Christian Wolff, just a monthly spot check to confirm the numbers make sense against what your group actually did that month.
The takeaway
Fiscal sponsorship can be the right call for a young organization, and most sponsors handle it well. But “most” isn’t “all,” and the Enrichmond collapse showed what happens when a sponsor doesn’t. Separate funds, separate books, traceable payroll and payables, and regular reporting aren’t extra precautions. They’re the baseline that lets a sponsored project trust the arrangement it’s relying on.
If you’re evaluating a fiscal sponsor, or wondering whether your current one is doing these four things, that’s a conversation we’re glad to have.
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