What is a Fiscal Agent for a Nonprofit [And Should You Use One]? - YouTube

Mark: Step number five in the nonprofit  checklist is to consider whether you want  

to use a fiscal agent, or a fiscal sponsor, or  neither one. So what does that mean? What is  

the difference between the two? And do you even  want to use either type of organization? These  

types of organizations can be a big help when  you are first getting started, but there are some  

drawbacks as well. So let's talk through it. I am  Mark Lyda, from Lyda Law Firm. Let's get started.

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Mark:  

So the general idea here, whether you are  talking about a fiscal agent or a fiscal sponsor,  

is this is a more established nonprofit  

that can act as kind of a parent or a mentor  organization to your startup nonprofit.

They can be great to use when you don't have the  bandwidth to do all of the back-office stuff or  

handle all of those responsibilities  that come with running a nonprofit,  

or if you just simply don't know how to  do all of that stuff yet. They also are  

great for helping you administer grant funds, or  donor funds if you receive them. We'll get into  

more detail about that. But that's the general  idea of what we're talking about in this video.

So, sometimes, you'll hear the phrases  or the terms fiscal agent and fiscal  

sponsor used interchangeably, but there are  technical legal differences between the two.  

First, we'll talk about the differences  between those two terms and then we'll  

talk about kind of the pros and cons  of using either type of organization.

All right, so first, comparing fiscal  sponsors with fiscal agents. Well,  

a fiscal sponsor, think of that type of  organization as having more responsibility  

and more control than a fiscal agent.  So if you get grant funds, for example,  

for a project that your nonprofit is doing. Or  if you want to seek grant funds, and you're not  

yet set up and don't have all of your formal  processes in place to go get those grant funds,  

a fiscal sponsor will be the group that actually  receives those grant funds on your behalf.

They will retain responsibility for  making sure those funds are used properly,  

but that also means that they'll  technically have legal control  

over those funds. So even though they are  kind of steering them toward your group's  

project, your nonprofit, your charitable purpose  — technically, they are in control of those funds,  

not you. They can also do some of the same things  that a fiscal agent does in terms of providing  

you back-office support and logistical  support while you are getting started.

A fiscal agent, on the other hand, sure, they  provide some of the back-office and administrative  

support that a fiscal sponsor does and they  can help you administer your grant funds. But  

they don't have technical legal control over those  funds and they don't have responsibility for those  

funds. So if you're using a fiscal agent, you  have control over the money, but you also have the  

legal responsibility to make sure that that money  is being used for its proper charitable purpose.

If you don't yet have nonprofit  status, then the donations that come to  

you through the fiscal agent will not be  tax-deductible to the donor, the person who is  

giving the money. If you do have nonprofit status,  or if the project that the money is going to  

has independent nonprofit status, then those  donations will be tax-deductible for the donor.  

So that's the main difference between the  fiscal sponsor and the fiscal agent, it is  

really just the level of control and  responsibility that the fiscal sponsor has,  

as compared to the lower level of control  and responsibility that the fiscal agent has.

OK. So let's talk about the pros and cons of  using, really, either type of organization  

because you don't have to use a fiscal agent or a  fiscal sponsor, you can go it alone. So the pros  

for using one of these types of organizations  is that they will give you back-office support,  

they will give you administrative support, they  have their own nonprofit status. So when you are  

starting out, that can be very attractive and they  have all of their Is dotted and their Ts crossed.  

They do all the things, that all of those  little details that you're worried about, often,  

the fiscal sponsor or fiscal agent already has all  of that set up and they have those boxes checked.

They can help you with grant compliance to  make sure that, OK, after you get a grant,  

there is a bunch of responsibility for how  to use the money, how to report on how you're  

using [00:05:00] the money to whatever source  gave you that funding. That can be a burdensome  

administrative project. Well, a fiscal sponsor  can really help you with those responsibilities.

And the final pro is that, sometimes, donors, or  foundations, or even governments that are handing  

out grants might be more comfortable giving  it to a more established organization. So if  

you're using a fiscal sponsor, the donor might  be more comfortable working with that fiscal  

sponsor than working with you if you haven't  really made a name for yourself out there yet.

Now, let's talk about some of the drawbacks to  using a fiscal agent or a fiscal sponsor. Well,  

one is cost, they do charge a fee for those  services. It isn't just all happening for free.  

Now, on the other hand, that cost may be lower  than some of the startup costs if you are going to  

handle all of the administrative stuff yourself.  If you're going to get your own 501(c)(3) status  

and go through that whole process, and maybe  hire some people to do your administrative work.

Ultimately, you'd have to compare the  costs of going it alone versus using  

a fiscal agent or a fiscal sponsor.  But they do charge for their services,  

and especially after a while, that  can start to feel burdensome for  

what you are getting in exchange for those  services. So that's something to consider.

You also may not be comfortable with giving  up that sort of control. Especially if you're  

using a fiscal sponsor, you may want  the responsibility but also the control  

over the money that you're receiving. And then,  lastly, you may get to a point where you say,  

"OK, we're established now. We have been using  a fiscal sponsor or a fiscal agent, but we're  

established now. We can handle our own  admin. We can administer our own funds.  

We can report to our grantors about how  we're using that money. What are we spending  

all of this money on with the fiscal sponsor or  a fiscal agent?" And you may want to transition.

Well, at that point, the fiscal sponsor or  the fiscal agent may have come to rely on the  

fees you are paying them as part of their budget  and. And while they are technically supposed to  

help you transition as seamlessly as possible,  they may drag their feet just a little bit,  

or it may feel that way to you. So  those transitions can sometimes be a bit  

difficult, and that's  something to consider going in.

And if you are looking at specific  fiscal sponsors you may want to use,  

that's probably a conversation you want to have  right away on the front end. Rather than waiting  

till you're already ready to leave  before you ever talk about, "OK,  

what is the process for kind of spinning  off on our own and going independent?"

So those are the differences between fiscal  sponsors and fiscal agents and just a few of  

the considerations for whether to even use  one of those types of organizations at all,  

as compared to just going it alone.

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legal education free for small  businesses and for nonprofits.

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