August 10, 2020; Baltimore Brew
In 2012, NPQ’s Rick Cohen covered the collapse of an organization that had served as fiscal sponsor to many nonprofits. In that story, Cohen describes how the funds being held by the sponsor ended up becoming something of a Ponzi scheme. Nonprofits that had trusted their fiscal sponsor saw their monies lost forever, potentially damaging their ability to survive at all. It’s a sad, cautionary story that potential clients should keep in mind as they look for this kind of partner.
In this new case, as reported by Baltimore Brew, some of the more than 100 nonprofits that use Strong City Baltimore as their fiscal agent are waving a red flag. Something is wrong, they say, because they cannot access their funds, invoices on their behalf are not being collected, and bills are not being paid.
Baltimore, as you may recalled, was the site of the infamous 2015 Uprising, protests that followed the death of Freddie Gray at the hands of Baltimore police that year. In the aftermath, millions of public and private dollars surged into the city aimed at addressing the issues of inequity in Baltimore.
The idea of fiscal sponsorship grew as a way of managing and directing the funds that were being invested. One group, then known as Greater Homewood Corporation, was willing to take all comers, where other fiscal sponsors began to turn potential new clients down, perhaps out of appropriate caution. Taking on as many as 120 projects, and in turn, collecting fees of around $600,000 annually, the agency grew and grew until it changed its name to Strong City Baltimore, bragging that it was truly a citywide initiative, “supporting neighborhood leaders, fostering civic engagement, and building community.”
As a reminder, fiscal sponsorship involves an established nonprofit organization providing their own nonprofit status and some administrative support to new or smaller organizations. The established organization serves in a sense as an umbrella nonprofit. The model is often hailed as a good way for nonprofits to get started or for good ideas to get off the ground without ever having to create a new nonprofit but it is, in the end, an intimate relationship that can go sideways in many different ways.
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Last month, 19 clients and former clients and six funders sent a letter to the board demanding accountability. “This compact has now been violated too often and too egregiously,” they wrote. “As clients, we have reached a breaking point.”
Their complaints center on the core of the relationship, which is the offer of financial systems that are safe and reliable for organizations that do not want to invest the time in building them on their own. That reliability requires liquidity on the part of the host and on-time and accurate accounting to clients. But, according to the letter:
- “Strong City failed to produce reliable financial statements from July 2019 to January 2020. Delays continue and accuracy has declined.”
- “Strong City consistently fails to issue invoices and pursue collections in a timely manner. Transparency and accuracy have declined.”
- “Strong City has harmed relationships with vendors and contractors due to delayed and blocked payments. Policies have been inconsistent and unpredictable.”
Kevin Anderson of NEWfit says $150,000 of his organization’s money is currently “locked up,” and describes Strong City Baltimore as a Ponzi scheme—just as in the case covered by Cohen eight years ago. He accuses Strong City Baltimore of commingling the money from all of the organizations for which they serve as fiscal sponsor. Worse, Strong City told him his organization is in a deficit position. He claims that is because Strong City is behind on collecting as much as $450,000 of receivables.
What happened is not entirely clear just yet. We do know that the organization grew quickly from a $3.4 million organization in 2014 to a $12.1 million organization four years later. Such growth would require a great deal of care as the organization builds its client serving systems, especially when much of this is pass-through funds that belong, in the end, to its clients. But Strong City Baltimore also became involved with a developer in buying and rehabilitating the former Hoen Lithograph Building, which it now rents from the developer. Heralded as a significant investment to help revitalize the Collington Square neighborhood, the complicated building project attracted city funding, New Market Tax Credits, and matching funds from the state. All told, the project was estimated at $34 million; Karen Stokes, the executive director of more than 14 years, called her participation on the team that made it happen the biggest challenge of her professional life.
Strong City took up residence in the facility in 2019. In April of 2020, Stokes suddenly retired and a new interim executive director has taken the helm at Strong City Baltimore. Reginald Davis has promised to make things right and seeks to open communication and rebuild trust through transparency. He says the organization is now issuing monthly financial statements for its clients and that it has beefed up its systems but, as Baltimore Brew reports, concerns remain.—Rob Meiksins