Although the non-profit sectore, by virtue of its tax-exempt status, was not directly affected by Sarbanes-Oxley Act, these businesses have come under legislative scrutiny in the three years afer the act’s passage, particularly in 2004 and 2005. Much of the focus is related to corporate governance, according to a report released today by Standard & Poor’s titled, “Under Legislative Scrutiny, The U.S. Nonprofit Sector Embraces Corporate-Style Oversight.”
“Although many people agree that enhanced oversight may be beneficial, and encourage greater confidence in charities, sector officials seem to prefer that new guidelines come directly from the sector,” said Standard & Poor’s credit analyst Mary Peloquin-Dodd. “The wide range of missions, sizes and scopes of organizations comprising the nonprofit sector makes it difficult to create a single list of requirements that work for everyone,” she added.
The Sarbanes-Oxley Act was created in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures. The act covers issues such as establishing a public company accounting oversight board, auditor independence, corporate responsibility and enhanced financial disclosure.
Lawmakers and nonprofit industry insiders are struggling to identify reforms that will decrease the potential of abuses by larger organizations, but will not discourage, or impose financial and administrative hardships on smaller entities.
Many states are addressing this challenge by creating legislation that increases registration, audit, or compliance requirements as a function of increasing organizational size, as measured by annual revenues. State associations of nonprofit organizations are also working to compile their own lists of guidelines in an attempt to self-regulate and prevent a more burdensome level of government intervention.
The report found that Sarbanes-Oxley has clearly had an impact on the various proposals that have been developed. Typical recommendations include the preparation of audited financial statements by independent auditors, formation of audit committees, board member requirements or restrictions, code of ethics and whistleblower policies, and increased disclosure about board members.