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Gene Takagi & Andrew Schulman : Fiscal What?
Fiscal sponsorship. You’ve probably seen it and don’t know what it’s called. We’ll fix that as we cover what it is; who does it; how it can help your work; getting started; and what can go wrong. Gene Takagi is our legal contributor and principal of NEO, Nonprofit & Exempt Organizations Law Group. Andrew Schulman is with Schulman Consulting.
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Hello and welcome to tony martignetti non-profit radio big non-profit ideas for the other ninety five percent. I’m your aptly named host. We got two new sponsors to welcome today. Wittner, cpas and apolo software welcome, wagner. Welcome apple, o’s. Oh, i’m glad you’re with me. I get slapped with a diagnosis of collect a zia if you tried to milk me with the idea that you missed today’s show physical what fiscal sponsorship you’ve probably seen it and don’t know what it’s called will fix that as we cover what it is who does it, how it can help your work getting started and what could go wrong? Jean takagi is our legal contributor and principle of neo non-profit and exempt organizations more group and andrew shulman is with shulman consulting. They’re both with me for the hour. Tony take two sponsor love responsive by pursuant full service fund-raising data driven and technology enabled pursuing dot com and by wagner sepa is welcome wagner guiding you beyond the numbers wagner, cps dot com you’re not a business you’re non-profit apolo see accounting software designed for non-profits welcome abalos, they’re at non-profit wizard dot com and by we be spelling. Supercool spelling bee fundraisers. We be the spelling dot com. What a terrific pleasure to welcome back jean takagi. You know him? You know, i’m for pizza, but he deserves a proper introduction. Of course. He’s, a managing editor, managing attorney of neo, the non-profit and exempt organizations law group in san francisco. And he edits the popular, wildly popular. You should be usually following this blood non-profit law block dot com highly recommended by non-profit radio and he’s, the american bar association’s twenty sixteen outstanding non-profit lawyer he’s at g tack on twitter welcome back, jean. Hi, tony it’s. Great to be back. Ah, pleasure and were joined. Bye, andrew showman. He runs the only consulting practice in america focused on fiscal sponsorship, showman consulting, assisting both sponsor organizations and fiscally sponsored projects. He’s, an active member of the national network of fiscal sponsors and a probono consultant for the taproot foundation. His companies that showman consulting, dot com and he’s at am shulman. Welcome, andrew. Thanks for having me, tony. Good to be here. Pleasure. I’m glad you both with me. Thank you for the hour we got we got a big topic this fiscal. What? This fiscal? Sponsorship. Gene let’s, let’s. Start with you. What? What? What are we talking about? Fiscal sponsorship. But it is a little bit of a complicated topic. We have an hour together, which is great. The pickles sponsorship can mean a lot of things. And so when people use the term pickle sponsorship, many of them are thinking of it as a kind of using another organization to raise money so that they could get a charitable project off the ground without forming a new non-profit. But it also refers to other types of relationships as well. But it generally refers to the ability of the charitable project to get the benefit of a five a one c three and raising money through five twenty three through the relationship of the project leaders with the five o one c three o’clock you are approached by a lot of, well, intention, zealous people who want to start non-profits and you just mentioned this can be an alternative to that. Do you have you guided people in this direction? Oh, and it has been successful. Yeah, absolutely. Tony so it works is a great incubator for charitable ideas that organizer’s may not be. Sure of you know, we’ll get off the ground or not, but they’d like to give it a try where might be for a limited scope, it might be for you no one event a year or we’re going to just do it for one year and see what happens. It’s great to have a another charity out stairs and things, you know will sponsor even we’ll, you know, we’ll sort of recognise this is an internal project of ours, and you can work with us to do it. And if it works, maybe spend off later and you form your own non-profit so it works of the great incubator, and i often advise smaller organizations that don’t have a lot of administrative expertise. Teo, think about pickles and jean have you also worked in your practice with the sponsor organizations? Yeah, with several sponsors throughout the country, tony and on their way to do it right into ways to do it wrong. So hopefully we get a chance to look into those things a little bit more. Okay? Sounds good. Andrew let’s bring you in. I know your practices both on the sponsoring side and also the the sponsoring a project side. Anything you want to add at the at the outset, the way tryto break this down for people. I would just just echo what you said about, you know, its sponsors have bean a lot of different things, and you know, it the most interesting thing that i’ve run into is that everyone has a, you know, a little bit of personal experience, i say they were looking at physical processes through a keyhole, and if you sort of pull back there’s actually a whole landscape of different things that it means and different ways that could work. So that’s, what it’s really about? Okay? And i got i got, i guess, validation for the two of you being expert in this area, someone e mailed me someone who works in non buy-in the fiscal sponsorship and said that both jean and andrew are experts on then, of course, now we’re on facebook live live listeners if you want to follow us. Ah, watch the video facebook live! Go to the tourney martignetti non-profit radio page, facebook and document hello, reed reed says gina’s, an awesome expert. Thanks for the topic. Absolutely, reed. You’re in the right place. You should be here every every friday one to two eastern. This should be your your staple friday at one. O’clock! But i’m glad you’re with us today read on also vanessa jones is on facebook live hello? Vanessa. Hello. Um okay, so yes, you both said lots of ways to do this, and in fact, there are models a through f so we’ve got six models, but the two of them are the most popular a and c i don’t know why it’s not a and b maybe we can bring that up with the national, the the national national network. Thank you. Thank you, andrew. National network of fiscal sponsors, but anyway and see the most popular. So we’re going to spend time there, but let’s see andrew let’s stick with you. What? Just let i don’t want to tick off six different models because we’re not going to spend a lot of time on four of them. But just what? What are the distinction? Like what? What characteristics distinguish generally between the six models? What kind of different things that we see in the six different models and then we’ll have time to focus on amc. Okay, okay. Yeah. I will go through all of them individually. But, you know, the key differentiator is elearning and this is something jean will hopefully timing as well. Is the legal relationship between the bumper and the project? Ok? And so do you. Think of it. Spectrum, you know is at one and where the project is essentially the eyes of the law of the ira. Just the program pasta. Looks like they decided to start up a new program. It was much the same way to the regulators, you know, down to, uh, c is one where the project is actually a separate legal entity has its own. We got standing, but just does not have usually does not have a five. One two three on those using the answer for that. So there’s all between there there’s all different relationships on different setups, but basically dependent on what that relationship looks like. Sort of what level the project is at in terms of their i don’t know their situation of you know, either. Incorporated. You have any standing? Okay. Okay. So, it’s a different relationships between the two. Andrew, when we come back to you, i need to speak up a little louder. Okay, try toe latto. Right. A little post it note on your by your phone. And speak a little louder. Okay, so you remember through the hour you’re coming in to buy it for everybody. Okay, now i did find, you know, contrary to popular belief. Actually research these conversations before i have them. And at fiscal sponsorship dot com there’s an article by someone who i think is pretty well known in this area. Greg gregory colvin on my right, gentlemen, he’s he’s written a book. Yeah, i don’t have that right. Yes. Okay on dh he’s got a chart. So if you go to fiscal sponsorship, dot com in this paper by him which is called presentation on fiscal sponsorship also aptly named good for him there’s a chart. And it has the a through f and lays out different basic characteristics. And whether it’s a separate legal entity and we’re the charitable of nations belong and things like that. So if you want to, you want to get more detail on the six. Certainly khun consultant jean takagi or andrew goldman. But if you want to see a simple chart, then you could go to fiscal sponsorship. Dot com. Okay, gene let’s. Um, let’s, let’s. Start toe. Break these down. Model a. Way let’s say we just have, like, a minute or so before break. So why do you just given overviewing of of what? A model, eh? Looks like jean sure. So it’s actually exactly what andrew? It said it. It really is an internal program or unit of the fiscal sponsor. And what happens is the project leaders, the people who come up with the idea that they want this project sponsored, go up to the physical sponsor and say, hey, can you develop a internal program within your entity within your charity, but delegate management of it up on the one thing that separates it from just being a plain vanilla internal program? Is that there’s a fiscal sponsorship agreement that allows the program organizer’s or the project organizer to spin it off at any time? They decide that the fiscal sponsorship relationship isn’t right? Or they decided that there finished with the incubation and they want to set up their own non-profit bible, twenty three entity and then move the programme over into that new energy so that basically modeling in that shop? Okay, cool, well done on. We’re going to dive in further on that and talk. About the pitfalls contracts. Bond, gentlemen, what i do want to do is i want to approach this from the perspective of a potential sponsors, because we’ve got, you know, over twelve thousand people working in and around small midsize non-profit. So they’re all potential sponsors, so that i want to look at it from that perspective more than the perspective of the potential projects. Okay, so everybody stay with us. Fiscal sponsorships continue. You’re tuned to non-profit radio. Tony martignetti also hosts a podcast for the chronicle of philanthropy fund-raising fundamentals is a quick ten minute burst of fund-raising insights, published once a month. Tony’s guests are expert in crowdfunding, mobile giving event fund-raising direct mail and donor cultivation. Really, all the fund-raising issues that make you wonder, am i doing this right? Is there a better way there is? Find the fund-raising fundamentals archive it. Tony martignetti dot com that’s marketmesuite n e t t i remember there’s, a g before the end, thousands of listeners have subscribed on itunes. You can also learn maura, the chronicle website philanthropy dot com fund-raising fundamentals the better way. Welcome back to big non-profit ideas for the, uh, they’re ninety five percent got a bunch of people who joined us on facebook live. I love it, rob meger, dahna lechner character chicky and i think we’re headed to the beach. Gary astro, welcome, welcome. Uh, is that kurt? Kurt hildebrand? Okay, welcome, facebook, live. Glad you’re with us. Um, okay, so. Uh, your name is jean, not sam. Sorry. Nobody’s name here starts with an s so that was that was a big faux pas. Okay, gene let’s, let’s. Go a little further with model a. Why? Let’s again? From the sponsoring organizations perspective. Why would non-profit want teo taking an internal project from some bunch of ruffian startups? Start up people with a lot of passion, but not any business sense. What’s the advantage to the that sponsor organization. Well, hopefully they have a little bit of business. Otherwise you wouldn’t take them. Yeah, all right. That’s, the main reasons why a physical sponsor and existing charity would say, hey, i’m willing to sponsor your project and actually make it an internal program of our entity. The main reason they should do that, it’s because it furthers their own charitable mission. So that should be the number one reason what ends happening sometime by maybe less informed leaders of some organizations that might be willing to physically sponsor a project is that they think that it might be a way to make some additional money on. And they might say, hey, we can raise funds for this program. But you know, bring in a little of that for our own general admin purposes, and maybe that that’ll that’ll effectively give us more resource is to do everything else. Okay, well, right, because andrew there’s a fee associated with this, right that the sponsoring organization charges the project. Yes, i think that’s correct, usually it’s space, either on the revenue that’s raised percentage or face on the expenses of that project. Okay, and what, what, what, what? What’s. A typical range what’s fair. Well, it depends on the model depends on a lot of things, but i would say anywhere between five and fifteen percent. Okay. Okay. Uh, in the rain. All right. We’re just right now. We’re just talking about model a sow is that? Does that apply for model a five to fifteen percent? Yeah. Model a. We’re probably looking at four of us st nine. Ten. Fifteen. Okay, a little bit hyre right, because the organization that sponsors is taking on a lot of responsibility, right? Let’s, start flushing that out. Yeah, exactly. There. They’re taking on all of the legal responsibility all of the risk in terms of liability for the project. A cz well, as taking on the financial management of the donations that are coming in and how they’re being piela being spent all that money being spent, the employees rest if there’s paid employees so there’s a lot of a lot of pieces for the for the for the pompel okay. And what what’s the board’s obligation here before we before we take this on it. It sounds like something we shouldn’t do just for the revenue. Wait, let me just let me just start with that question. We should not do it. And i think gene was alluding to this. We shouldn’t do it just for the money. Do i have that right? Yes, i would say nobody should get into any part of non-profits to make a lot of money. Okay? And, of course, you know, even e guess, even if it furthers your mission. But you know, if you’re not really into the whole idea, but you just feel like you could let’s say it does meet the criteria that gene mentioned definitely furthers your charitable mission. Ok, got that. But then wait. We could make some money at it. You know where we’re like, lukewarm on the relationship idea. But, you know, we could make nine or ten percent that’s. This is not the way to go about it, right? Right. Right. Yeah. It really also requires the sponsors have there processes of infrastructure in place to do what? Well, i know there’s. We’ve talked about the book that six ways to do it right, andi, i know jean government have flogged their six ways to do it long from a legal standpoint in my world. From the operation standpoint, there’s, probably about a hundred ways to do it wrong on one of them is trying to take on a project as a sponsor when you don’t have your own infrastructures, set up well, and your financial processes and on all of that work is not sort of ready for prime time than if you take on someone else’s. On top of that, you’re just setting yourself up for bad situation. You alludes in the book? I didn’t. I didn’t make the connection explicitly. The book is by gary coleman. Is that right, greg? Greg coleman, thank you. Six. What is what is the exact title of his book? Jean correct me if i’m wrong, but i think it’s a fiscal sponsorship six ways to do it right? Yeah. That’s absolutely right. And and greg corbin is the guru oh, on this topic, tony he’s he’s really led the whole movement on dh written really? The seminal book and probably only full sized book on the matter. And it’s any non-profit actually wants to start a physical sponsorship program or hasn’t, you know, has started doing it kind of informally, but not really gotten their ducks in order. They should buy this book and read it very carefully. Okay. Greg colvin, fiscal sponsorship. Six ways to do it right. Is that right? That’s? Right. Okay, jean let’s flush out some of these legal responsibilities that ah, sponsoring organization is taking on under model a what does the board need to consider and be aware of? So apart from from the mission of the project, they want to make sure that they got the right sort of project leadership in place. They obviously, as andrew was saying, you’re taking on not only all of the responsibility, the legal responsibility, the project and the financial management responsibilities project, but everything to do with the project is to do with your organization as well. So it’s there any risks involved in that project? The liabilities are going to be the physical sponsors you’re not isolated from that. So you’re taking on all that responsibilities the board has got to think about on dh sometimes he delegates this off to management that the project is well to find enough to be able to do it, but i like it when boards actually approved the projects and take a look at the application, which might include bios of the project leaders, um, and any special rigs that might be involved with their activities. So if there are working with children no, if they’re going on outdoor expeditions or if they got a camping program, is going to be dealing with research for on any see more than just sort of playing administration in an office they’ve gotten think about the risks and whether they have the right insurance in place and all of the infrastructure things that andrew said they’ve got to get in order before the accept the project, those are all the things that the board has to say. Yes, we’re prepared. To take on this particular project because we’ve got all our ducks in order to be able t o i handle the management and oversee all of the management of this particular project, its employees and volunteers and everything else. All right? I’m i’m getting i’m getting tired now of talking in the abstract i want i want toe implore you to tell me a story. So, gene, can you have you have a client story you could tell about a model, eh, fiscal sponsorship that that went well? Sure so ah, a typical model a project make may come in that say says we’ve got this great idea. We’re going teo run an after school program for children’s education in this area of a city that doesn’t get much of those services. We’re not sure you know if it’s gonna work or not, we project that we’re goingto bring in about one hundred thousand dollars a year, and we’re not sure of funding outside of the first year we’ve got some donors and foundations, perhaps that if we have a five a one c three, they will commit. So we’ve got this first year commitment of one hundred thousand dollars we’re not sure after that, if it’s gonna work, so we’re looking for a physical sponsorship relationship to start out with, and that might be kind of the first cases of saying from the physical sponsors point we’ll have you done anything like this before? Have you raised funds before or, you know, how did you get this initial one hundred thousand dollars worth of commitment on dh? What risk is there going to be involved in your after school program? What exactly? When are you going to do who’s going to manage it? Do you need employees? You know, are you going to be all volunteer, right? Those are the types of questions that need to be asked of this particular project that we’re talking about and sometimes stop, you know, in that particular project that i’m thinking of, you know, ended up becoming a great project for that sponsor, the people that brought in the project, we’re really focused on program and fund-raising they didn’t want to worry about all the admits, what filings to make? They didn’t wantto worry about payroll tax withholdings or insurance developed beings called the government’s policies, or even putting together a real board of directors, andi get all of that through the physical sponsors that works really well for the project and the programme leaders. The fiscal sponsor gets this project because they’re also interested in in-kind of children and youth programs in their area, they get this great project that gets a lot of attention, does very well, not only for the first year, but for subsequent years after that, and a great long term relationship arises, and the project actually ends up staying with the physical sponsor, not just through an incubation period that they never want to leave the fiscal sponsors. If you imagine tony one hundred thousand dollars, if we’re talking about even ten percent in administrative fees that’s only ten thousand dollars that’s the project would be paying to the physical sponsor in order to get all of those things. All of the insurance policies of filing no set up that a great relationship that can happen. Okay? And it’s continued, gene has been successful staying with that sponsor organization for many years. All right, andrew, i’ll give you a chance when we get the model. See, i’ll give you a chance to tell a story. Ok, not to worry, okay, um, but still i model a andi want remind listeners i’m talking. Teo jean takagi, principle of neo non-profit exempt organizations, law group and our our legal contributor. And andrew shulman, principal at shulman consulting shuman consulting dot com and we’re talking about fiscal sponsorships right now. Model a. We’ll get to the model, see, and we’ll find out why be got skipped over andrew, what do you what do you like to see you mentioned? There is a lot of things that can go wrong. Tick off some things that you like to see in a written agreement, and i’m presuming that there should be a written agreement. Everything i read said there ought to be a written agreement, but sometimes there isn’t, or a lot of times there isn’t so let’s, just assume that non-profit radio listeners are going to do it right. There is going to be a written agreement between the two entities. What do you like to see in that agreement? Well, i like to see i like to see a lot of things, i mean, okay, i mentioned before, nothing, one of the most important one is how you know a clauses in sections that that will tell how this relationship might end it already if and when it’s ready to be ended by either party. So if the project isn’t doing well and the practically there’s aside, okay, we’re you know, we’re going to close up shop. There should be part of the contract that say, ok, when that happens, here’s, how we’re going to do it wording and andrew, including the possibility of spending off to a different supporting organization, right? Right. So that’s the other side, if it does well and they decide either way, we need to move to a different sponsor that maybe has mohr provoc rise more services or more services. Tailors are specific needs or we want to go out. We’re at the point where we’re big enough people enough, we get our own. Five. One, two, three. You know what? How? What are the rules? And one of the for the processes dictates that so that that should all be in the contract, i’m i also like tio put in again, i’m not a durney venus, but i like to also put in the expectations of both the sponsor that the project should have for the sponsor and that the sponsor has for the project, so that gets into a little bit of process. And, you know, when, how long should we expect as a project that’s gonna take us a sponsor too? Latto check when we need to, you know, make a payment to a vendor or to review a contract before we before we do it, how, you know, if we’re if we’re applying for institutional grants from foundations, what’s the role of the project of the sponsor in that those kinds of things as well so that that’s the kind of stuff that usually gets skipped over in a lot of cases, but i found that to be successful as a sponsor, you really have to set the expectations up front of both how you’re going to operate with the project and what you expect from them. Jean would you want to add on the contract side so just clarity about that, that the project and all of the funds raised for the project are really funds raised for the physical sponsors, the party that signed the contract with the physical sponsors so the project leader they’re not registered to engage in fund-raising themselves and they don’t have five a onesie three status out neither the physical sponsors, so they have to realize that when they’re fund-raising there fund-raising as agents of the five a onesie threespot co sponsor, and they’re raising funds for an internal project of that sponsors so it could be restricted funds that they’re raising but it’s not funds for their separate entity or anything like that. So when they spend off, they might form a separate entity. But ultimately all of the funds belong to the sponsors, so there should be that legal understanding and the contract has got to recognize that. Because if you run into an issue with the irs for an attorney general or other regulators, that documentation has got to be perfect, even though ultimately the sponsor should be willing to transfer out the assets that you’ve got a suitable successor that’s willing to take on the project, including if the project leader’s create their own five a onesie three entities, now they’re going to be little caveat to be careful about. So here we go. One of the reason why the termination is because the project leaders have failed miserably and even embezzled money from the organization. Well, then you don’t wanna transfer assets out to something that they created that you know, would be imprudent for for the physical sponsors board. So little caveats like that you gotta be careful about, and then when they draft an agreement, you want to make sure that the sponsor is protected and doing it in the right way. Okay, we’re going tow. We’re going toe. All right, hold on. There just latto close that model a conversation. When we come back, we’ll do the model c will move to that. See what the differences are. See. See what it means legally, andi, i have to do in the meantime, do a little business first, beginning with pursuant, they’ve got a new free content paper for you. And that is the intelligent fund-raising health check. Health care is in the news. This is a fund-raising health check evaluates state of your fund-raising it includes nine key performance indicators. I think those air kp eyes if you want to be jargon e, but we’re not, we’re not here. Ninety performance indicators and ten characteristics of organizations that thrive. Where do you go? You go to tony dot m a slash pursuant twenty dollars starts pursuing check out free resource is from our sponsors pursuant weinger cps welcome again. Welcome, wagner. Welcome to non-profit radio. They are a cpa firm based in madison, wisconsin, and true to their tagline, they do go way beyond the numbers. They are also very generous with tons of free resource is they’ve got a page and has dozens of policy statements for you, including all the policies you need to make your form nine ninety complete like committee meetings, disclosures on fraud, document retention, lots of others and you’ll be hearing me talk about thes from week to week got to check these resource is out too, you know? Different but valuable absolutely from wagner cpas there at wagner c p a’s don’t forget, the less at the end dot com weinger cps dot com you’re quick resource is then guides stop wasting your time using business accounting software for your books you are in a business, you are a non-profit you’ve heard rumors to that effect welcome apolo software, our second new sponsor, this this week. Apple juice, apple of accounting is the product, and it is designed for non-profits. Don’t use the business software for non-profit your non-profit europe near you are born, used one that was built from the ground up for non-profits financial management. Simple, affordable it’s called apple, owes accounting. It includes fund accounting, advanced reporting, donation, tracking everything you need in one simple software, and you want check out apple of software. You want to see what what apple’s accounting is about. You go to non-profit wizard dot com that is our sponsors, those are our sponsors, welcome new sponsors. I’m very grateful for that. And now it’s, time for tony stick, too, and i am imploring you to show love to our sponsors are our listeners, whether you’re alive. Podcast or affiliate? I’m so grateful. That was not a side. That was a sign of gratitude that everybody’s with us. Um, i need you to ah, i need to check out the sponsors. It’s important. We need them to stay with her us so that we can continue to attract great guests. I can continue to take the show on the road to conferences will get outstanding speakers. They’re the conference speakers. I need you to support our sponsors on their new ones coming october first. So you may hear me mention this again. But for now, pursuant regular sea pia’s appaloosa counting on dweeby spelling. I need you to check out all our sponsors if they if you think they can help you, please let them check them out. Thank you very much. That is tony’s take two and i am with jean takagi and andrew shulman. We’re talking about fiscal sponsorship. Gentlemen, i think we’re ready to move. Teo model. See, unless unless somebody has something burning that the lackluster host did not cover in model a. So anybody, anybody have to say something about model, eh? Okay, going, going, gone. Thank you, thank you. Um, let’s. Move to model c and, uh, give it to andrew. What distinguishes model c from model, eh? Church model c is more of an armed blink relationship. Aunt it’s usually just face around a, uh, candy to space around a specific activity or even a specific grant about me from the project that the project is soliciting through the sponsors tax id number. So basically, in this case, the project, it is not a division or unit sponsor, but they have their own legal status. They usually registered within their state as a charitable organization, but they don’t yet have a five twenty three or don’t have a five, twenty three andi so they remain distinguish where here is that instead of handing off all of that administrative were to the sponsor with model, eh? I don’t see a lot more of that falls on the project, but they’re really just utilizing that. Five, twenty three status of the sponsor two taken tax deductible. So so is this just temporary? Until the the project gets its five. A onesie three designation from the irs, it can be can be temporary. Can be longer term candy. You know, there’s. A lot of uses. I know we haven’t gotten the story time. Yes, but there’s a lot of uses. For model b, the art where if you can imagine, a documentary filmmaker is doing a film that has a terrible purpose heimans telling an important story and they want to raise money via donations. I willbe tax deductible from the donors. And so instead of going through the process of getting their own twenty three, they can actually go through a physical sponsor of the model t and do it that way. Okay, uh, and reminder. I should’ve i should’ve mentioned it earlier. Andrew, remember to speak louder. Okay, write yourself a note and then look at the note to you’ve got to look at the note after you write it. Uh, jeanne model see what you want to add. So i’ll just build on what? But andrew, it just said a lot of times this is a project that thought by arts groups, sometimes by by research group, and they may not actually deformed the non-profit they might just be individual. So proprietors in the case of artist oh, are they might be just a for-profit type of al, l, c or business corporation, but beached in some sort of charitable effort. So the general idea here is they want to raise some money, and they’ve got some willing funders either donate or make grant to this specific project, but the funders and the donors the donors want to get a tax deduction for making the grant, but they can’t make a grant to liken individual artists and just take a deduction for that right on the foundation may not be able to make a grand to an individual artist without jumping through more hoops that they have to do under the regulations when they give to non charities, so both of them would rather give to a charity. But the fund what the artist maybe doing and in that case give it to the physical sponsor and the physical sponsor has the ultimate legal control and discretion over what they’re going to do with the money subject to the restrictions that the donors put. The donors are not going to say you have to give it to this individual artists what the donor’s going to say is we want teo produce oh, are we want to fund the production of a documentary on penguins in argentina and there’s only one, you know, so maker that’s actually doing that and they’ve made that, you know, typical sponsorship contract with the physical sponsor and what the models see. Agreement is a pre approved grant relationship. So basically their physical foncier’s saying, yes, we’ve already vetted this project. The artists on, and we know that they’re doing the research and they’re competent, and we trust them to be able to use our grant money properly. So if we raise the money, teo fund this project, we’re going to re grant it to this person, and this person is going to deliver the project for us, and then we’re going to make sure that it gets published. Distribution is simply because that’s, what a person on league it is, people, that’s, the typical marvel. Okay, so there’s that. There’s. More vetting involved. Do i have that right? Yes, going to be quite a bit of betting in in advance, just to make sure that this person isn’t just pay themselves, you know, for their their own living and, you know, housing expenses, but not do anything charitable with the money or build that they sell to a private collector. So it never gets into the public realm. And it’s just a way for that person to make extra income on their parents, donated the money and took a tax deduction for that that was completely improper and unlawful. So the sponsors got to make sure the vet that, if we’re going to enter into this relationship, are our role is a grantmaker, just like a private foundation might, you know, have a role to vet all of their grantees. But when you’re not going to give a grant to another public charity, you know, the responsibilities and the vending has got to be a little bit stronger, because you have to make sure that your money that you’re giving your charitable monies, that you’re giving us a fiscal sponsor, are only going to be used for charitable purposes. And they’re not going to be a fuse for private benefit. Jean do we know why model b got skipped over? Why did we get screwed? Well, pick first shot at a b b is around and this probably as the third most common of the fiscal sponsorship forms and it’s a little bit of model aimed he combined in that the project is owned by the physical sponsors, but rather than as in model a, where all the employees, volunteers and the contractors all are employed or hired or contracted by the physical sponsor. The entire project is going to be contract id out a single independent contractor in the model b, so you own the project because you want to control the project result, but you hired an independent contractor who would probably be the project leaders that brought the project to you in the first place, and they’re not going to be your employees, but they’re going to be independent contractors to it, and they’re going to supply all the services that our program services the cynical sponsor will still do most of the back office stuff. So is it too late there? Insurance would cover it, but they would hyre out an independent contractor. Can we have movable? Can’t we move? See up to be and be down to see since since sees more popular than be or is it xero late for that? So what? Who created this created this? I don’t know what greg’s mom and creature grantmaking. Dr gramm. We’re popular bin b but b if you look at it in terms of control and responsibility of the fiscal sponsor a is the most responsibility for the physical sponsor is the next most and he’s the least i see. All right, so we were working down a xander was saying earlier. It’s the relation what distinguishes these six is the relationship and we’re working. We’re working toward less less responsibility for the sponsor. Is that a through f? Do i have that right? At least eight, just like different variations. All right, all right. We need to get greg on here. Explain his nomenclature. But thes e the one who created this morass. Okay, we have it. We have a bit of a naming problem. Yeah, if you haven’t noticed. Yeah. Model, eh? My late model. Be okay. Uh, andrew, tell us a model. See story. Sure. So remember to talk loudly. I okay, i’m trying to tell me if i’m not because i’m trying to tell me what i need to talk even more loudly. Ok? Ok. You said okay, go ahead. I worked with. Okay, great. So i worked with an organization that association for non-profit news organizations on dh part of what they do is offer physical sponsorship metoo start up non-profit news entities. So i think, like the local ah, websites that have serve lots and all of the country with all the investigative reporters i’ve gotten laid off from newsrooms they’ve all got out started their own websites to cover local governments and things like that, and they offer a fiscal sponsorship in mile see to those entities to help them get started because and sometimes to stay for a very long time, because the gandhi’s are folks who are starting these entities that aren’t looking to you manage, you know, a non-profits they’re not looking to worry about out getting there there five, one, two, three status and and all of that on this organization that’s those folks, obviously they know who they are. They’re watching them very closely and know they’re acting as the five twenty three for all of those organizations. Okay, and that is that relationship continuing? Yeah, they have a have a great program. They have. Ah, i don’t know, probably upwards of twenty or so. And, you know, like i said, sometimes makes sense for that’s, awful, sponsored project and either model to separate out on their own. And sometimes it makes sense for them to stay, because, you know, if you had a certain level of size and fund-raising staff, bond, all that kind of stuff, uh, it’s, just a really good deal for you to be sponsors. And so, you know, especially in this day and age where a lot of funders are concerned about overhead and have lots of questions about overhead. I always tell people you’ll never have lower overheads in which her under physical sponsorship. We’re going to go out for our last break when we come back. Of course, live listeners love that. We’ve got to do that, and we’ll explore a little more than due diligence. Yes, and, you know potential risks. In our last seven minutes or so, stay with us. 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It’s a family um andrew who’s, that who’s that sick rings that you andrew genes genes used during this so it’s probably it’s probably andrew’s genes used to hearing all this. I was ranting, you see, listen, specially love jean um okay, let’s, talk a little about some due diligence. Jean i gave you a shot earlier. Let’s andrew let’s, talk to you now about let’s. Hear from you sorry up my voice just cracked like i’m a fourteen year old on some or the due diligence that is sponsoring organization needs to do, you know, detail. We like actionable details for our listeners lorts sure, well, i think. You know, especially if you’re either either model, either either model, right, looking, too, to take on a sponsored project. You know it. This is a relationship. This is a marriage, essentially, that you’re getting into. So if you start with that apprentice, you think about, you know, in a business sense, all of the things that you want to make sure you know about the folks that you’re, you know, metaphorically getting into bed with. So you obviously want to know about their experience. You want to know about their support networks, whether two people raise money or, you know, bring on more people to help their project evolved. You want to know, you know, if they’ve had any, obviously, any criminal activity or anything like that, for sure, it also you want to find out about their plan. So, do they have a business plan or aa program plan? Do they have a fund-raising fran? Do they? You know, is there any money committed at this point already, like you guys mentioned before, that’s sort of ready to go if they’re able to get this that status, you know, those are the kinds of things that you really wantto dig into and understand, and that, you know a good official sponsor will have a pretty well defined application process that, you know, may have multiple rounds of interviews with the, you know, the staff of the mon for the board of the sponsor. In some cases, you know, like inside you, you do want ideally the board to make this decision or help you make this decision to take on these projects or even to start a sponsorship program because they are the end of the day, the one who’s, you know, they’re on the line at the end of the day, their fiduciary responsible for for the whole thing. So, you know, it should be you should at least have some input into that. Where do you see the responsibility for this do dilgence residing? Who does it? Treyz who i think who on the organization is doing it. So go ahead, and because usually the staff, you know, whoever it will be involved in working with the project from the path of the sponsor, would take the lead, maybe with some help from from some key boardmember okay, jean, did you have something more about through? Dilgence yeah, i just wanted wanted to add that it really is critical that the physical sponsor understand, particularly in the model see situation that there there one’s fund-raising forth the project, even though the project is housed in a different legal entity and that they’re going to make grants to they’re responsible for all the monies and all the responsibilities associated with the donors or the foundations, including e-giving a grant reports back to the foundations, and if it’s government funded the audit requirements that go along with that and that’s where you get the hefty, like the fifteen percent physical sponsorship administrative fees that andrew was talking about, government audits are incredibly difficult to do and expensive but fickle sponsor has got to be prepared to do all of that. They’ve got to make sure they’ve got adequate strapping to be ableto handle all of these and treat all of these is restricted funds and have all of the infrastructure, all the right policies over the right agreements, all of the right qualifications to do business if they’re in different states and registrations, you know, tony, you’ve got to be prepared to do all of that, and that made depend upon each project that they get, they may be incurring additional responsibilities that they’re going to think about on dh what if they what if they don’t do it right? Jean? What? What are what are some of the potential penalties were the worst thing that that happens is of course, the project gets into huge trouble, and they, you know, they engage in some sort of political activities and all of us and you jeopardize your own five twenty three status or a child has been hurt because of the negligence that they’ve got that have exhibited, and you don’t have enough adequate separation in the model c or it’s, a model a and its internal project of your physical sponsors. So you’re completely responsible for the liability, and you may find that you don’t have enough insurance because he went, anticipating those things and the bad if you weren’t really prepared for it. So those air the two worst case scenario. Ah, andrew. It sounds like you really should have some outside help and expertise. If you’re if you’re going to take this on. Well, i would i would recommend it. I mean, i think you especially if you’re doing it for the first time. So are a lot of people come to me or i’m sure jean when they’ve already got a couple of projects underneath, um, i say a lot of people get into this accidentally or at least unintentionally and, you know, like we said, they’re six weeks to do it right there’s a lot of ways to do it wrong on in the operation side of things and you know it, khun khun very quickly go from a really good thing, tio not so good thing in your whole team is now focusing all their attention on these projects and it sort of eating up all of their bandwidth on dso, you know, having some of those processes procedures in place on getting all those things set up is really important again, going back to the due diligence, the written contracts, i guess both of you have seen cases where it’s just been a handshake mary-jo absolutely, yeah, happened a lot. And then when when there’s a termination that happens, there’s a conflict about what? What should be done into who’s, you know, the funds belong to a lot of complexities when they don’t do it right at the start. Dahna andrew was something wanted ad about the downside of a handshake agreement. It’s well, i would i would just say that whether or not there’s a handshake or even a contract, you know, we’ve talked a lot about model a model see, and they are very specifically laid out, but what do you see out in the wild if there’s really a spectrum of how they operate? And some of them i’m not always done to the letter of the law and monsters don’t realize it, and, you know, some of the very long to get by obviously would recommend doing that if you don’t know what you’re doing, but it was really, you know, there’s a lot of variability out there, so if you are thinking of becoming a sponsor or you are a sponsor and you’re not sure you definitely want to talk to somebody who knows what they’re doing, gene, there is no legal definition to these right? That there’s no one legal, definitely fiscal sponsorship isn’t defined in any code or regulations, so cynical sponsorship. Is just referring to these relationship that are ultimately defined by the contract and that’s why you needed a written contract, because we need to know what relationship you actually have and the biggest, biggest thing, and where everything often goes wrong is misunderstanding that an outside legal entity other than the physical concert could not fund-raising for the project, even those of the individuals associated with it are fund-raising for the project, they are on ly doing so as agents of the physical sponsor. So the physical sponsor ultimately has control over all of the funds it is raising. And if it’s going to re grantham out, it’s going to re grantham out under its own legal discretion and subject to what they call all variant of powers in accounting language, basically saying that ultimately, the physical sponsors board has full control over them of those assets, subject to the purpose restrictions or timing restrictions that might be involved with the donations of the craft. Okay, we’re gonna leave it there because i think it’s ah, i think it’s appropriate to leave it on. Ah, sort of a note of caution. This certainly can do wonders for your charitable. Mission and your work, but i feel like what i’m sensing from from the two of you is you know, you got to do this right? So i’m going to sort of leave it on that cautious still a little bit of a finger wag that admonition tone that you probably need some expertise and you’ve got to make sure you do this correctly. Is that okay, gentlemen, anybody disagree with that? How can you? Okay, not at all. Okay, so i want to thank you very much. Andrew shulman. You’ll find him at shulman consulting dot com and at a m shulman and jean takagi editing the very popular non-profit law block dot com and he’s at g tak gt. Okay, gentlemen, thank you very, very much. Thanks, tony. Thanks, anders. Thank you so much. Have a good one. Pleasure. Thank you. Again. Next week, video storytelling and maria semple returns with deep pockets. If you missed any part of today’s show, i beseech you, find it. I’m tony martignetti dot com. I love our sponsors pursuant online tools for small and midsize non-profits data driven and technology enabled pursuant dot com regular cpas guiding you beyond the numbers. Weinger cps dot com kaplow’s accounting software designed for non-profits non-profit wizard dot com and we be spelling supercool spelling bee fundraisers. We b e spelling dot com creative producer is claire meyerhoff. Sam liebowitz is the line producer, shows social media is by susan chavez, and this very cool music is by scott stein. You’re with me next week for non-profit radio. Big non-profit ideas for the other ninety five percent. Go out and be great. Yeah. What’s not to love about non-profit radio tony gets the best guests check this out from seth godin this’s the first revolution since tv nineteen fifty and henry ford nineteen twenty it’s the revolution of our lifetime here’s a smart, simple idea from craigslist founder craig newmark insights orn presentation or anything? People don’t really need the fancy stuff they need something which is simple and fast. When’s the best time to post on facebook facebook’s andrew noise nose at traffic is at an all time hyre on nine am or eight pm so that’s when you should be posting your most meaningful post here’s aria finger ceo of do something dot or ge young people are not going to be involved in social change if it’s boring and they don’t see the impact of what they’re doing so you gotta make it fun and applicable to these young people look so otherwise a fifteen and sixteen year old they have better things to dio they have xbox, they have tv, they have their cell phones me dar is the founder of idealised took two or three years for foundation staff to sort of dane toe, add an email address. Card. It was like it was phone. This email thing is right and that’s, why should i give it away? Charles best founded donors choose dot or ge. Somehow they’ve gotten in touch kind of off line as it were on dh and no two exchanges of brownies and visits and physical gift. 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