Hundreds of Nonprofits Out Cash After Fiscal Sponsor Scam

Over 200 nonprofit groups including Tim DeChristopher's Peaceful Uprising have lost funds totaling about a million dollars since their fiscal sponsor has shut down suspiciously, leaving some of the groups unable to pay staff, bills or continue needed projects.

The fiscal sponsor in question is the California-based International Humanities Center (IHC). Its website is no longer online, and the LA Times reports that the center stopped its operations last month, notifying its clients by email.

Many small nonprofits use a fiscal sponsor, Deseret News explains, to handle the groups' donations:

Such an arrangement is popular for groups that don't want to go to the expense and time of obtaining the tax-exempt status with the IRS, and in exchange the parent group typically takes 10 percent of what is donated.

Peaceful Uprising describes how they were deceived by the IHC:

We were recently shocked to learn that our fiscal sponsor, International Humanities Center, (a California-based 501(c)(3) charitable trust) had spent the money donated to Peaceful Uprising on their own operating costs. They claimed to be unable to give us access to the funds or to return them - which has left us unable to pay our small staff, rent for our space, or any other expenses. As it turns out, we weren't the only ones to be deceived - over 200 other Projects under IHC's fiscal sponsorship were also caught by this horrific surprise.

The Salt Lake Tribune adds that Peaceful Uprising has lost $88,000 to the IHC:

[IHC] stopped making timely payments on invoices for organizing expenses in November, Peaceful Uprising national organizer Henia Belalia said, and has been unresponsive since a confusing January email from executive director Steve Sugarman stating the center was shutting down.

"He used very vague language," she said Tuesday, "and when he told us there was no money, he never accounted for it or said where the money was."

In addition to Peaceful Uprising, KPCC reports that Champions Against Bullying, the Southern California Bluebird Club and the Afghan Women's Mission were also affected. The LA Times adds Campaign to End Israeli Apartheid, Saving Wild Tigers, the Malibu Realtors Fund, and Shanti House L.A. to the list of affected nonprofits.

Afghan Women's Mission writes that it has lost around $400,000:

We were informed in mid-December 2011 that International Humanities Center (IHC), the non-profit group that we had hired to manage our funds since 2003, has lost all of our donations. All of the nearly 200 organizations that had accounts with IHC are the victims of this theft. Altogether, about $400,000 donated to Afghan Women's Mission to fund RAWA's projects were lost.

The LA Times reports on the questionable claim that IHC had used funds properly:

Steve Sugarman, the center's executive director, said in an email to some of the groups that he was filled with "deep regret" over going out of business and hoped it caused no lasting harm. He assured them in the email that all funds had been properly spent, though it is not clear what he was referring to because a fiscal sponsor is not supposed to spend its clients' money on its own operations.

A consultant for the center told some of the groups in a letter that their donations were used to pay legal fees and other bills, including $12,000 a month for offices in Pacific Palisades, as well as back taxes and penalties to the IRS.

The Nation's Peter Rothberg writes that a coalition of affected nonprofits are working to get an investigation of IHC underway:

For the last few weeks, Peaceful Uprising has been reaching out to as many other IHC projects as possible (some of which are working to bring basic needs to people in war-torn countries in the global South) in order to lead a unified response. A coalition has now submitted a request for an investigation to be conducted by California public officials.