Sarbanes-Oxley For Nonprofits

Public interest in nonprofit activities is on the rise. Calls for greater disclosure and accountability are getting louder. Although the SarbanesOxley Act applies to forprofit businesses, it provides a good governance model for nonprofit entities.

• Create an audit committee if you do not already have one. Make sure it is active and aware. In a smaller organization, the finance committee can also be the audit committee. In any event, audit committee members must have the financial competency to understand financial statements, evaluate accounting company bids to do auditing, and make sound financial decisions as part of their fiduciary responsibilities.

• Establish and clarify auditor responsibility. Nonprofits should adopt policies and procedures to ensure that the auditing firm, or at least the lead and reviewing partners, are rotated every five years, and to prevent auditing firms from providing nonauditing services except for tax services and preparing Form 990.

• Have the CEO or CFO publicly attest to the accuracy, completeness, and fairness of financial statements and to the adequacy of internal accounting controls.

• Consider very carefully all transactions between the organization and any insider, including executive compensation, fringe benefits and perks.

• Publicly disclose that you have adopted and follow a code of ethics for senior management and the governing board. If you do not have one, make adoption a priority!

• Adopt whistleblower protection. SOX offers enhanced protections for whistleblowers and provides criminal penalties for retaliation against them. It is illegal for a corporate entityforprofit or a nonprofit to punish whistleblowers in any manner.

• Create a document retention/destruction policy. SOX makes it a crime to alter, cover up, falsify, or destroy any document (or persuade someone else to) to prevent its use in an official proceeding. Nonprofit organizations must maintain appropriate records about their operations, like financial records, significant contracts, real estate and other major transactions, employment files, and fundraising obligations.