October 10, 2019; Daily Inter Lake
While NPQ believes that fiscal sponsorships are great vehicles for many small or newer organizations, the relationships do go bad from time to time, and when they do, it can get ugly. In this case, the sponsee is suing the sponsor after the relationship went off the rails.
In this case, the Two Bears Family Center had worked out their own fiscal sponsorship relationship with the local United Way, expecting they would have the systems in place to manage its budget. On the surface, it looked like an excellent bridge for the young organization, which provides family reunification services, but soon, according to Two Bears’ suit, inadequate financial reporting began to pose problems, creating lack of clarity on budget matters, including around the questions of solvency and sustainability.
They soon found themselves facing a number of distressing barriers, according to their lawsuit:
For example, [Sharon “Sherry” Stevens, executive director for Northwest Montana United Way] allegedly had agreed to, on a monthly basis, supply Two Bears with a spreadsheet showing the incoming payments to United Way and expenses charged to the organization. However, “Stevens rarely supplied a spreadsheet of incoming revenue from Two Bears,” the complaint stated.
The alleged lack of documentation “inhibited Two Bears’ ability to cross-check any outstanding invoices” because the organization was “unaware of what invoices had been paid.” They believe as much as $8,000 in unpaid invoicing had accumulated from September 2018 to July 2019.
Two Bears alleges numerous other financial errors were conducted by Stevens, including failure to submit pay stubs along with paychecks, failure to supply paychecks altogether and “improperly categorizing a wage garnishment of one employee as falling under contributions to the ‘United Way Pledge.’”
When [Two Bears’ founders, Kim Kearney and Bernadette McDonald,] pressed Stevens on why they hadn’t received several paychecks, Stevens allegedly replied, “No employees of United Way are getting paid because Two Bears is operating under a $36,000 deficit,” and allegedly refused to discuss the matter further.
Eventually, Two Bears appealed to the board of the United Way, despite warnings from Stevens. The fiscal sponsorship was set up to help the organization gain a foothold for independence, but, according to Two Bears, in July 2019, when it asked to check in about separating, they found themselves unable to get an appointment with the United Way Director. They believed they now had enough coming in to sustain their budget and provided a timeline for separation, but they soon found themselves served with a letter that requested that they depart three days from receipt. The letter falsely stated, according to the lawsuit, that the United Way had filed suit against Two Bears, and that the group was operating under a false name.
The lawsuit alleges, astonishingly, that there was no written agreement on the sponsorship and no date identified when the relationship would end or be revisited. It also claims that the request for the group’s immediate departure from Gateway Community Center violates Montana Code Annotated, which states any termination of a lease requires 30 days’ notice.
Later, on October 3rd, Stevens’ legal counsel sent an email to Two Bears, indicating the missing paychecks for the Two Bears employees were available but that “payment is contingent on them signing an interim services agreement setting forth their status as independent contractors.” However, an investigator with the state Department of Labor said signing such an agreement could result in a fine up $1000—an insight that prompted Two Bears to refuse the proposed agreement.
On October 4th, Two Bears was asked to “cease providing services at 5 p.m. that day.”
So, what are we to take away from all of this? First of all, any fiscal sponsorship agreement should be anchored by a contract that spells out the conditions of the relationship. Second, the fiscally sponsored organization should be crystal clear about its requirements for operating reasonably within such a relationship. The need for regular financial reports that meet the requirements of managing your particular organization should be clearly understood before you sign any such agreement.
More information about how fiscal sponsorships are meant to function can be found in this excellent and thorough article by Fredrik O. Andersson and Daniel Gordon Neely that contains a discussion of resources to help you locate and screen fiscal sponsors. Nonprofit attorney Gene Takagi’s overview of fiscal sponsorships can be accessed here.
Ideally, a fiscal sponsorship relationship will help fine tune your own financial systems, not sabotage them, but we have heard (and experienced) stories like this more than once. Shop carefully and take the time to make a good decision. In the end, it may spare much heartache.—Ruth McCambridge