"Fiscal Agency" Relationship

Overview:

• When a non-exempt entity can not qualify for funding because it lacks 501(c)(3) status it might seek out an exempt nonprofit to procure the funding.

Getting the Ball Rolling:

• The non-exempt typically gets the ball rolling by approaching the exempt entity presenting it with a detailed description and budget of the proposed new program


• The exempt entity would agree to proceed only if the proposed program is 100% compatible both its mission and with its IRS approved exempt charitable or educational purposes.

Memorandum of Understanding (MOU):

• A Memorandum of Agreement (MOU) entered into before the funding is obtained.  The MOU obligates the exempt and the non-exempt entities to collaborate in good faith to seek out funding and to implement the proposed program.  A detailed description of the program and a proposed budget would be attached as an exhibit.


• Except for the obligation to act in good faith and confidentiality the MOU is NOT legally binding.  The obligations of the parties would not become legally binding until such time as the funding is obtained and a mutually agreed upon service agreement has been entered into obligating the non-exempt entity, in exchange for compensation, to perform the services needed for the new program  CLICK HERE to view the template used to create the MOU.

Typically the non-exempt entity would be the one that performs most of the leg work to obtain the funding (including in writing funding proposals, etc.)

The Exempt Entity Contracts with the Funding Source.

• It is the exempt 501(c)(3) entity that enters into the contract with the funding source. The funding souce will look exclusively to the exempt entity (not to the non-exempt entity) to be responsible for properly spending the money and meeting all requirements of the grant.

Service Agreement with the Non-exempt Entity

• After the funding has been secured the exempt entity enters into an independent contractor agreement with the nonexempt entity to perform the services needed to carry out the new program in exchange for compensation


• The Service Agreement is essentially a subcontract obligating the nonexempt entity, exchange for compensation, to carryout most of the exempt entity's obligations under the prime contract with the funding source.


• A standard template for an independent contractor agreement is used as the starting point for the creation of the service agreement.

Conclusion

• The new program is technically a program of the exempt entity and not the nonexempt entity (though it can be branded so as to associate it in the public's mind with the nonexempt entity). The nonexempt entity is technically a subcontractor.


• It is best to avoid the use of the term "Fiscal Agent" because that term can create the dangerous impression that the exempt entity is merely a passive funding conduit.