Pros and Cons of Using a Fiscal Agent

Here in Nebraska, we have faced massive storms leading to tremendous amounts of damage. Luckily as our University Fight Song says “We’ll all stick together, in all kinds of weather, for dear old Nebraska U.”  And private donor efforts have taken off. One individual raised $230,000 for relief efforts… then came a call from the Attorney Generals office… and over 100 calls asking about the legitimacy of his efforts.

These are obviously laudable efforts, but there is an excellent solution to these issues. It’s called using a fiscal agent. A fiscal agent is an agreement to use another organization to handle the funds raised for a cause. Typically, this is a non-profit who has their 501 c 3 Status that is willing to work with you on your designated project. I have worked on many projects where I have used an organization as a fiscal agent I have also worked for the organization which acted as the fiscal agent. I wanted to put together a little bit about my experiences and what you should be thinking about as you consider this type of arrangement.

Pros

Easy and Quick. Using a fiscal agent is typically done because you need to react quickly and don’t have the time to apply for your non-profit, tax-exempt status (called a 501 c 3 tax exempt status) which can sometimes take 6 months.

Formal. Having a formal structure to go and work through gives you the benefit of making donors more comfortable. They will have to report to a board, produce a Form 990 tax report, they will probably have an audit, subject to review by other entities, and they have had time to build a relationship of trust.  

Less Hassle. I’ve helped file the forms to create a non-profit, and it is a pain. It takes a lot of time and run around. Typically unless you know you are going to be bringing in $25,000, I do not tend to recommend setting up a non-profit. It’s usually easier to hire an attorney or CPA to do that for you, but that is costly.

Taxes. By using a qualified non-profit, you can take advantage of their tax exempt status in your efforts. It also qualifies so that your donors can give you money.

Grants. One of the most common reasons for using a fiscal agent is because a granting entity will require it. Even if it is not required a granting body will be far more likely to award you the grant if you have an organization you work with.

Infrastructure. Having the benefit of infrastructure can be huge. These could include accounting software, staff, chapters, volunteers, email lists, facilities, etc. This massively increases the ability of the funds that you have raised to be helpful.

Cons

Lose Control. The most substantial downside is that by using a fiscal agent, you lose control. Ultimately, the entity that you are working with has control over the funds. I’ve experienced this, and it is frustrating.

Credit. Sometimes the non-profit entity will take all the credit for the work that you have done. If you are doing this for the good of the cause, then that doesn’t really matter. However, frequently people will be frustrated if they are not credited for their work.

Flexibility. With the benefits of increased structure also comes the limitations structure places on you. For instance, if you want to stop a coal plant from coming to your part of town and use a fiscal agent that is a 501 c 3, then you wouldn’t be able to give that money to help elect a city council member who might prevent the coal plant from getting their building permit.

With all of this, I still recommend that you consider consulting with your attorney and/or a CPA. Ultimately, this will be situational. If you need someone else to chat with, please feel free to shoot me a message, and I’d be happy to provide some guidance.