The Fiscal Sponsorship Red Herring

I've been watching some friends and colleagues wrestle recently with whether to spin off an existing public interest project into either an independent non-governmental, charitable entity, or move the project to another larger non-profit to have it "fiscally sponsored." The basic idea behind fiscal sponsorship is that you convince another entity that has better back office support to accept funds on your behalf and manage your human resources and administrative support. A good example of this in my universe is the International Budget Partnership (IBP), an incredibly influential and effective international non-government organization (NGO) that to this day remains a project of the Center on Budget and Policy Priorities in Washington, DC. IBP has a massive reputation but actually doesn't exist legally. Yup, strange.

Proponents of fiscal sponsorship argue that it's easier for a start-up NGO to be sponsored as compared with striking out on its own. Cost and unfamiliarity with the necessary processes to incorporate and manage back office services are cited as evidence, particularly for small social start-ups.

But I think that fear is a bit of a red herring and is inhibiting some groups from going independent when it otherwise makes complete sense. I thought I'd tick off what it took to start Global Integrity in both time and cost to prove that you don't need to be a serial social entrepreneur to start your own independent NGO.

  1. The lawyers. It's true that you'll ned some legal help in incorporating your NGO and qualifying for charitable status, regardless of the country. This seems scary and expensive at first blush. But in my experience (creating Global Integrity and the Global Integrity Trust in South Africa, a separate legal entity) it's fairly easy to find good, affordable lawyers who know what they are doing. In both cases we spent no more than US$4,000 on legal bills and it took us no more than a few days to locate NGO-specialist attorneys in both Washington and Cape Town simply by asking around. Once you find the right lawyers, they take care of the rest, having incorporated thousands of NGOs over the years. You just fill out a ton of forms. Budget about three months for the whole process.
  2. The accountants. Another fear is that keeping the books is scary, hard, and risk-laden. I agree that accounting is a fairly dim practice, but it's not that hard and there are loads of bookkeepers and controllers specializing in NGO accounting. Nor is it expensive. Most start-up NGOs probably don't need a bookkeeper coming to the office more than once a month, and even if you are paying US$75/hour at the high end that's not going to break the bank. There are even entire firms specializing in placing non-profit accountants with NGOs on a part-time and ad hoc basis.
  3. The HR/Admin stuff. A third category of concern for those weighing incorporation versus fiscal sponsorship is the mess that is back office operations: insurance, human resource issues, rent, and technology. But it is increasingly easy to outsource the majority of these functions. At Global Integrity, our myriad of insurance policies are handled and adjusted by an independent insurance broker with yearly check-ins. You can always find template employee manuals to crib from, and payroll can now be managed online and on the cheap through a variety of automated payroll providers (I once famously processed biweekly payroll from my hotel room in Nuku'alofa, Tonga). The advent of cloud-based computing has often rendered the need for an "IT guy" obsolete.

Is setting up an international NGO easy? No. Is it impossible? Certainly not. Is it worth paying an umbrella fiscal sponsor like the Tides Center 15% of your total revenue each year just to manage your payroll and insurance? Heck no. Social entrepreneurs would do well to think twice before embracing the fiscal sponsorship model.