Fiscally sponsored projects (FSPs), or fiscal projects, are agreements that involve two primary parties, a sponsor and a sponsored project.  The sponsor will have an active non-profit, able to receive tax deductible contributions.  The sponsored project will be a party interested in doing work related to the sponsor’s mission, but without a means to receive tax deductible contributions.  A fiscal service project agreement is an arrangement in which the sponsor provides the tax identification number and administrative support to receive and spend money on behalf of the sponsored project.  In such arrangements, the sponsor will often collect a fee in order to offset the additional administrative cost of taking on a fiscally sponsored project.

The work of the fiscally sponsored project must fit within the mission of the sponsor.  If this is not the case, the sponsor runs the risk of compromising their 501c3 status for engaging in activities not supported by their mission statement.

To properly account for a FSP, your accounting team needs to be notified of several key pieces of information.  Each FSP needs a unique name to be used in your accounting’s department list.  This name will be used to tag and identify all transactions relating to the project.  The sponsoring organization should have a contract with the sponsored project that specifies the start date of the project, a clear description of the FSPs activities, when financial reporting for the project will be submitted and to whom, and any agreements regarding the sponsorship fee.

Fiscal sponsorship fees can take on a number of forms, but the most commonly used agreement is that the sponsor will take a set percentage of the sponsored project’s gross receipts.  The contract with the sponsored project should stipulate the frequency that the fee is calculated and paid.

Fiscal sponsored projects represent a liability to the sponsor in that the actions of the sponsored project are seen as the legal action of the sponsor.  For this reason, fiscal sponsorships should be closely monitored, that 1) their activities are aligned with the sponsor’s mission and that 2) their activities operate within a strong good will understanding of the sponsoring agency’s reputation.

Reporting for a fiscally sponsored project should be prepared for the entire operational history of the project, from inception to the most current date.  This will provide the reader with all money that has come in for the project and all disbursements that have been made.  The net of this report will represent the remaining balance available to the project.  It is for this reason that specifying the start date of the project and the frequency of the fee will make the reporting process accurate.

If vendors associated with your fiscally sponsored project are exclusive to that department, be sure to notify us, and we’ll help create coding rules to make sure payments to those vendors are always associated with the project.

Burton Li

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