Sarbanes-Oxley Coming to Nonprofits

While many nonprofits have probably heard of the federal Sarbanes-Oxley Act by this time, some four years after its enactment, apparently few have implemented changes in response, according to a new survey.

The following information was reported by the Association of Fundraising Professionals on its website:
“In an electronic survey of 300 nonprofit executives and board members, 57 percent were familiar with the Sarbanes-Oxley Act. However, only 38 percent of respondents said they have had any discussions concerning the act, and only 20 percent have made changes because of the act, according to the survey, The 2003 Grant Thornton National Board Governance Survey for Not-for-Profit Organizations. Grant Thornton, based in Chicago, is one of the largest international accounting and business advisory organizations.
Of the 20 percent that have made changes, 24 percent instituted a conflict of interest policy, 20 percent developed organization-wide polices and procedures for internal controls, 17 percent wrote a code of ethics statement, 16 percent created an audit committee charter and 11 percent instituted a 'best practices' for board governance, according to the study.
Only 16 percent of respondents said they had a whistle-blower policy, and of those without a policy, only 21 percent were considering instituting one. Answers were more promising when asked about a records retention policy or a policy on the destruction of documents. Seventy-seven percent said they do have such a policy, while 23 percent said they did not. However, only 41 percent without this policy were considering adopting one.”

So the question is, how’s your nonprofit doing on Sarbanes-Oxley? Here are the items you’ll want to review:
1. Conflict of interest policy
2. Policies and procedures for internal controls
3. Code of ethics statement
4. Creation of separate audit committee
5. Change auditors periodically
` 6. Written “best practices” for board governance
7. “Whistle blower” policy
8. Policy on records retention and destruction of documents

I recently surveyed a class of 30 fundraisers I was teaching in mid-Michigan. Only five of the thirty organizations said they were working on or had worked on any of these 8 points. Sarbanes-Oxley, in one form or another, is coming to nonprofits. And it is likely to be sooner than later. Why? Congress has been more concerned in recent years with the lack of public accountability for the rapidly growing “Volunteer Sector” of our society – our nonprofits and other voluntary organizations, tax exempt organizations. There are now about 2.5 million of these organizations and they are or tremendous help to our society, while accounting for something on the order of 20% of the GDP. But there is no established public accountability for nonprofits except the IRS Form 990, and a huge percentage of nonprofits do not file that form either due to ignorance or because they have fewer than $25,000 in assets. Consequently, Congress is going to be taking a look at nonprofits in light of the Sarbanes-Oxley accountability standards, and this is likely to affect our sector greatly.

Two prominent organizations in the fundraising field, Board Source and Independent Sector have combined to produce a report that may well prove helpful to your nonprofit. It’s called “The Sarbanes-Oxley Act and Implications for Nonprofits.” Here’s a short quote from that report:

“The Sarbanes-Oxley Act has now been in force for several years. The legal climate has
intensified in the nonprofit sector as Congressional committees and state legislatures
are actively proposing new legislation to regulate organizations. Individual nonprofits
have begun to identify loopholes - and figure out how to eliminate them. Watchdog
agencies and other nonprofit field-building organizations are reconsidering assumptions
and standard operating procedures in an effort to identify guidelines, standards,
and best practices in the sector.

“Regardless of the present scope of existing and potential new legislation at the state
and federal level, nonprofit organizations have heard the wake-up call. For all of us
in the sector, the Sarbanes-Oxley Act spearheaded a renewed realization that nonprofit
organizations rely on - and must protect - the indispensable and unequivocal confidence
and trust of our constituents. Self-regulation and proactive behavior will
always prove more powerful than compulsory respect of laws.”

Here’s the link to the Board Source Report

Get ready, it’s coming!