Item 04 - Arts Commission_July2026_Fiscal Sponsorship.pdf — original pdf

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Fiscal Sponsorship & Conflict of Interest Arts, Culture, Music, and Entertainment | July 20, 2026 Purpose of Today’s Briefing Fiscal Sponsorship in ACME Grant Funding Review staff, Law, and Auditor findings Conflict of Interest rules Appropriate Reporting Processes 2 Fiscal Sponsorship ACME Guidelines ▪ Fiscal Sponsor: A Fiscal Sponsor is a nonprofit organization with a 501(c) tax-exempt status that applies for financial support on behalf of another organization or individual, allowing the sponsored project to benefit from the sponsor’s tax-exempt status. A Fiscal Sponsor manages financial transactions and reporting responsibilities for the Sponsored Project. Please note that all Fiscal Sponsors must be headquartered in Austin and are responsible for ensuring that all funding is used for tax-exempt, charitable purposes as defined by the Internal Revenue Code. (page 40 of ACME Funding Guidelines) ▪ Sponsored Project: The individual or group that is under the umbrella of a Fiscal Sponsor, which is a 501(c) organization. (page 43 of ACME Funding Guidelines) ▪ Applicants may apply with a Fiscal Sponsor for the Elevate and Nexus funding programs. 4 Create Austin Resources ▪ A Fiscal Sponsor is a 501(c) organization that provides support to projects that lack nonprofit status. ▪ The Fiscal Sponsor handles financial transactions and supports reporting duties on behalf of the Sponsored Project. ▪ A single Fiscal Sponsor may sponsor multiple Sponsored Projects during each grant cycle. 5 Create Austin Resources Cont. *This resource collection provides non-exhaustive information on fiscal sponsorship practice. It is not a requirement to follow but references some forms of fiscal sponsorship and best practices to consider. 6 Sponsorship Agreement (required for application) 7 Fiscal Sponsorship Eligibility Review ▪ Sponsored Project starts and completes application as “lead applicant” ▪ Award type/ request amount is what the Sponsored Project is eligible for (i.e. $15,000) not what the Fiscal Sponsor might be eligible for (i.e. $50,000) ▪ Fiscal Sponsor becomes “owner” of the Sponsored Project account if SP is awarded ▪ Fiscal Sponsorship Requirements include: ▪ 501(c) status located in Austin or ETJ ▪ Salaried Executive Director ▪ In existence for ▪ At least 1 year with $50,000 operating budget, OR ▪ At least 5 years and have at least a $35,000 operating budget 8 Application Eligibility Review ▪ How does the Eligibility Review happen? ▪ Eligibility Review Form in Submittable ▪ Filled out for every application ▪ The Form includes verifying ▪ Application answers ▪ Uploads ▪ IRS Determination Letter ▪ Most Recent 990 ▪ Sponsorship Agreement ▪ If everything is approved, reviewer says “yes, eligible” and labels are changed within Submittable. 9 Fiscal Sponsor Eligibility Verification ▪ Check Determination Letter and IRS.gov for active 501(c) status ▪ Check FFIEC Census Report to verify location ▪ Check 990s for ▪ Salaried Executive Director ▪ History + Operating Budget 10 Agreements & Payments ▪ If awarded, the Agreement is between The Long Center and the Fiscal Sponsor ▪ Payments are made from The Long Center to the Fiscal Sponsor ▪ The Fiscal Sponsor pays the Sponsored Project according to their Sponsorship Agreement ▪ Note: some FS take a fee off each payment, some FS use the final payment (10%) as their fee, some FS do not take a fee at all ▪ ACME Grant Guidelines cap the Fiscal Sponsorship Fee at 10% of the Award ▪ Final Reporting – Fiscal Sponsor is legally responsible for the Final Report and Expense Documentation. If the Final Report for a Sponsored Project is not turned in, the Fiscal Sponsor will be in Non-Compliance status. The Fiscal Sponsor must reimburse the City for all Sponsored Project grant funds distributed OR the Fiscal Sponsor organization will be banned from applying for their own future ACME Grants (and would not be eligible to serve as a Fiscal Sponsor). Fiscal Sponsor may apply, but if awarded, cannot enter their own new contracts until all Sponsored Project Final Reports are complete/approved. 11 Understanding Fiscal Sponsorship ▪ Fiscal Sponsorship is optional since 2023 ▪ A discovery from the Cultural Funding Review Process (2018-2022): Requiring Fiscal Sponsorship for individuals and arts groups created sizable revenue streams for Fiscal Sponsors. Some Fiscal Sponsors had 12+ Sponsored Projects and would take 10% from each award. To avoid temptation/ perception of predatory behavior, we now let the artists/ arts groups decide for themselves if Fiscal Sponsorship is the best fit. ▪ ACME staff does not recommend one Fiscal Sponsor over another. ▪ On request, staff provide a list of previous Fiscal Sponsors for reference. ▪ The City does not dictate business structure recommendations to outside entities (i.e. what Sponsored Projects to accept, 6 various types of Fiscal Sponsorship, required fees, etc.). ▪ Fees for service are eligible costs for all awardees (space rental, insurance, equipment rental, etc.) 12 Many Styles of Fiscal Sponsorship! 13 Enhancements for FY27 Applications ▪ Key Decision Makers are required to be listed ▪ Removing Intake Form simplifies the issues around who starts an application ▪ Sponsored Projects start application, uploads Fiscal Sponsor requirements, Submit application ▪ If awarded, Sponsored Project account will be transferred to the Fiscal Sponsor during the Financial Information Collection phase ▪ We are now including Fiscal Sponsor names with the awarded Sponsored Projects on the published Awardee List (starting with the Nexus grantees just announced) 14 Fiscal Sponsor Round-Table: Planning Stage ▪ September/October 2026 ▪ Current ACME Grant Fiscal Sponsors ▪ Proactive discussion on Fiscal Sponsorship ▪ Policies and Compliance ▪ Important support structure within the Austin arts ecosystem ▪ Challenges ▪ Documentation standards ▪ 6 Models of Fiscal Sponsorship ▪ Opportunities for collaboration ▪ Recommendations for revised ACME Guidelines ▪ Documentation standards for Sponsored Projects ▪ Art from the Streets ▪ Art Spark Texas ▪ Austin Creative Alliance ▪ Austin Texas Musicians ▪ Fisterra Projects ▪ Future Front Texas ▪ Fusebox ▪ La Peña ▪ Latino Arts Culture Education Texas ▪ Little Bit of Good ▪ Museum of Human Achievement ▪ Recovery Alliance of Austin 15 ACME Grant Guidelines 2.0 ▪ Continuing conversation! ▪ ACME Guidelines: Creative Reset Phase 1 (2025) for 2026, 2027, 2028 Funding cycles ▪ Promise to community: Transparency and Stability ▪ Feedback between application cycles to inform enhancements (definitions, processes, etc.) ▪ 2026 Grant Application Window (Oct – December 2025) ▪ Three Surveys AFTER: January – April 2026 (Applicants, Panelists, Commissioners) ▪ 2027 Grant Application Window (July – August 2026) ▪ Three Surveys AFTER: September – November 2026 (Applicants, Panelists, Commissioners) ▪ 2028 Grant Application Window (July – August 2027) ▪ Focus Groups and Surveys Before/During/After to identify major shifts in ACME Grant Guidelines ▪ ACME Grant Guidelines 2.0 will tentatively be released by May 2028 (prior to 2029 Grant application window July – August 2028) 16 Review & Findings City Staff Response to Ethics Complaint ▪ Complaint via email about a Fiscal Sponsor. ▪ The claim: ▪ Sponsored Projects were programs of the Fiscal Sponsor ▪ Overlap of leadership/ core personnel ▪ ACME staff discussed with City Legal who recommended ACME due-diligence as a first step ▪ ACME staff started the due-diligence process by emailing the Fiscal Sponsor requesting ▪ How each project meets the eligibility requirements for Elevate ▪ An explanation of how the projects do not constitute programs or services of the Fiscal Sponsor ▪ Clarification regarding leadership and core personnel ▪ Any documentation demonstrating compliance (governance structures, sponsorship agreements, staff roles, etc) ▪ Fiscal Sponsor responded with in-depth documentation (Agreements, Financials, Leadership contact lists, Board Roasters, 990s, Expense documentation, etc) 18 City Staff Response to Ethics Complaint ▪ ACME Staff reviewed, determined everything was in line with City policy/ ACME Grant Guidelines ▪ ACME Staff provided documentation for review by the Legal team ▪ ACME Staff provided documentation for review by the City Auditor Office. They determined the accusations did not warrant a full audit. ▪ ACME Staff notified The Long Center that they could enter into Agreements with the Fiscal Sponsor and the Sponsored Projects in question. ▪ Arts Commission raised the issue at the June 2026 Arts Commission meeting, requesting more follow up. ▪ Director Means asked the new ACME Financial Manager to do an additional, independent comprehensive review of the materials. The outcome of this review was that the projects are all independent and are compliant in the Fiscal Sponsor structure. 19 Summary of Independent Review by Financial Manager ▪ Sponsored Projects operate independently: they are not subsidiaries or “part of” the Fiscal Sponsor. ▪ Independent decision-making: each project has its own programming, governance, and core personnel. ▪ Clear separation of roles: Sponsorship Agreements outline responsibilities and boundaries, affirming that sponsored projects are not programs or services of the Fiscal Sponsor. ▪ Unique leadership: documentation shows no overlap in core personnel across sponsored projects, supporting compliance with Elevate guidelines restricting multiple applications by the same leadership. ▪ Compliance evidence provided: agreements, organizational charts, project rosters, financials, and publicly available information collectively demonstrate independent operation and adherence to fiscal sponsorship requirements. 20 Next Steps on Allegations Protecting the Integrity of the City's Grant Programs ACME has an obligation to protect both public trust and the integrity of the City's grantmaking process. Allegations regarding misconduct, favoritism, or illegal activity are taken seriously and should be reviewed through the City's established administrative, legal, ethics, and audit processes. Those processes exist to ensure allegations are evaluated fairly, objectively, and based on evidence—not debated or investigated during Commission meetings. ACME has referred all allegations brought forward back to the City Auditors Office for an independent examination. To protect the integrity of the process, this matter is closed for ACME staff unless advised of findings and directives from the auditor's office. Clerks Office: Conduct During Commission Meetings Public meetings should remain focused on policy recommendations and matters properly before the Commission. City ethics, conflict management, and Boards and Commissions training emphasize maintaining decorum, avoiding personal accusations, and refraining from presenting speculative or unverified allegations against individuals, City employees, or organizations during Commission meetings. Allegations of misconduct should be referred through the City's established review processes. 21 Conflict of Interest City Code: Conflict of Interest ▪ City Code governs conflict of interest and the relevant portion states: ▪ 2-7-63B A City official who serves as a corporate officer or member of the board of directors of a nonprofit entity may not participate in a vote or decision regarding funding by or through the City for the entity. It does not apply where the official serves a nonprofit that is owned or created by council, or where the service is a duty of the office they hold. ▪ A City official shall disclose their service as a corporate officer or member of the board of directors of a nonprofit for which a vote or decision regarding funding by or through the City is being considered. ▪ Decision is defined and means any ordinance, resolution, contract, franchise, formal action or other matter voted on by the city council or other City board or commission, as well as the discussions or deliberations of the council, board, or commission which can or may lead to a vote or formal action by that body. ▪ These requirements only apply if the person is a corporate officer or member of the board of directors. It does not apply to other volunteers. 23 ACME Staff Conflict of Interest ▪ A City official (staff or commissioner) who is a board member or corporate officer of a nonprofit: ▪ May NOT participate in any vote, decision, or deliberation involving City funding for that nonprofit ▪ Must disclose board service publicly ▪ Staff board service is allowed with disclosure & recusal ▪ Per City Policy, ACME staff have disclosed board service ▪ The Ethics Office reviewed all ACME staff board and volunteer service and advised the following: "The analysis for a commissioner is the same for an employee. You have a conflict if you serve as a member of the board or a corporate officer of a nonprofit and there is a decision for the employee to participate in that involves funding by or through the city for that nonprofit. If there is an employee who fits this scenario, they must not be involved in any planning, deliberation, evaluation, or decision regarding the awarding of that funding. They must disclose the conflict, which it sounds they already have, and abstain from any related activity. " 24 Commissioner Reporting Reporting Violations ▪ City Clerk’s Office (Boards & Commissions Program) BC@austintexas.gov ▪ For: procedural issues, meeting structure, decorum concerns, agenda items, and compliance with B&C requirements. ▪ Law Department – Ethics & Compliance Team ethicscompliance@austintexas.gov ▪ For: ethics questions, conflicts of interest, permissible conduct, role boundaries. ▪ Per the Ethics & Compliance Team, they advise City officials on Code, ethics, and expectations. They do not conduct investigations but provide authoritative guidance. ▪ City Auditor – Integrity Violation Reporting Form Integrity Violation Reporting Form ▪ For: concerns involving misuse of position, patterns of behavior that undermine integrity, or violations of City standards. 26 Thank you for your partnership.