Fiscal Sponsor Closes its Doors Amid Speculation of Ponzi-like Scam

After a 3 year investigation by the IRS, the International Humanities Center (IHC) is closing its doors. IHC was a 501(c)(3) organization that functioned as an umbrella structure and fiscal sponsor, holding funds for 200 groups that are now trying to piece together what happened to their money. Estimates of $1 million or more of money appears to have vanished and that estimate is growing as members pull together to compare information.

The concept of a fiscal sponsor is one where small groups that might not have the wherewithal or inclination to set up their own 501(c)(3) organization can buy in to the sponsor’s umbrella structure for 10% of the funds managed. IHC would receive and deposit charitable donations in restricted accounts and distribute funds based on requests.

Some groups reported some lack of responsiveness in the last months of 2011 but all were blindsided by the sudden closure with little explanation. The California attorney general, IRS and FBI are all getting involved in attempting to sort out what happened. IHC CEO Steve Sugarman is denying any wrong doing and claiming recent donations would be returned.

According to the Nonprofit Quarterly, the numbers just don’t add up. “If the Center had not diverted the money, it would have been able to return the funds collected for its projects – or transfer them to some other fiscal sponsor that would take on its assorted projects – and call everything even.” The article also points to IHC’s 2009 990 which showed beginning the year with almost $600,000 in cash but ending with only $103.

What the ultimate fall-out will be remains to be seen. The Nonprofit Quarterly is going to analyze lessons learned in part II of its coverage of this developing story.