Startup Non-Profits Get Help From Bigger Partners

Little Oversight as Fledgling Groups Get Tax-Exempt Funding

Doing Good: The Jewish Farm School is one of many small startup non-profits that has received financial support from more established groups.
Doing Good: The Jewish Farm School is one of many small startup non-profits that has received financial support from more established groups.

By Seth Berkman

Published October 30, 2012, issue of November 09, 2012.
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This can involve pitfalls. William Josephson, a former chief of New York State’s Charities Bureau, said that regardless of which model is used, fiscal sponsors must treat the charity they’re sponsoring “as if it were in fact themselves,” exercising the same responsibility over reporting income and expenditures.

“You shouldn’t be using your own charitable authority, bestowed by the state, and your tax exemption, bestowed by the IRS, for purposes that are not charitable purposes consistent with yours,” he said.

This caveat notwithstanding, some groups have taken on large numbers of organizations. Jumpstart has joined with Community Partners, a secular, non-Jewish organization that has 130 fiscally sponsored groups. Jumpstart handles many of the back office services, while Community Partners receives tax-deductible contributions on the groups’ behalf.

Avedon said that Jumpstart’s board evaluates prospective candidates by looking for “things that make a difference and that are missing from the landscape.” In doing so, he said, Jumpstart asks three major questions: Does the organization align with Jumpstart’s values? Is its leader the right person? Will the project likely have an impact to create change?

Josephson said that fiscal sponsors should take additional steps when evaluating new partners, including receiving the monthly financial reports and audits that are received by the not-for-profit organization’s managers.

“In other words, the fiscal sponsor’s management should have the same ability to obtain and monitor info about the sponsoree that they do about their own organization.” Josephson said, adding that “the reverse is always true,” and sponsored groups “have to be sure of the solvency of the fiscal sponsor.” Making sure their sponsor has the proper “internal controls can protect them.”

“If they use the same auditor, they have to be sure that auditor has the same legal responsibilities to them as to the sponsor,” Josephson said. “If their financial statements are with a different auditor, they should make sure their auditor has its own access to the fiscal sponsor’s books and records.”

There is currently little oversight, though, on how fiscal-sponsored relationships are operating. “The IRS is not running around trying to police fiscal sponsors,” said Daniel Kurtz, another former New York State Charities Bureau chief.

One point of contention is the length of time that an organization can align with a fiscal sponsor. Neither Jumpstart nor Hazon has standards in place for this. Leonard Lodish, a professor of marketing at the Wharton School at the University of Pennsylvania, said that fixed terms were good policy. “Social ventures, like other ventures, should eventually be independent,” he said. “If they’re not able to exist without some support of the fiscal sponsor or incubator, then they may have a flawed business model, mission and positioning. Something isn’t working right.”

But Ronda Spinak, co-founder and artistic director of Los Angeles’s Jewish Women’s Theatre, said incubation cannot be hurried. Her group is one of those sponsored by Community Partners, a relationship that now goes back five years.

“I think the Jewish Women’s Theatre is where it is today in part because of the tremendous support, guidance and hope they’ve given us,” Spinak said. “We owe a lot to them for where we are today.”

She is wary of going independent. “I’m a fiscally conservative artistic director,” she said. “I grow in an organic way. Right now it’s a great partnership for us. We’re not looking to leave. I hope that someday, Jewish Women’s Theatre is strong and fiscally sound enough to be our own 501(c)(3), but we’re not there yet.”

Contact Seth Berkman at berkman@forward.com


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