Accountability Act Has Strong Impact on Nonprofits as Well as Public Corporations

Article excerpt

Sarbanes-Oxley is having a trickle-down effect on nonprofit organizations, according to Rick McCune. McCune is an Oklahoma City-based assurance partner with Grant Thornton, a national accounting, tax and business advisory organization. McCune focuses on helping clients understand and comply with the Sarbanes-Oxley Act.

Most of the provisions of the American Competitiveness and Corporate Accountability Act of 2002 (commonly known by the names of the act's authors, U.S. Sen. Paul Sarbanes, D-Md., and U.S. Rep. Michael Oxley, R-Ohio) legally apply only to publicly traded companies. But as expectations are raised for public companies, private organizations - particularly those looking for outside funding sources - are likewise being held to a higher standard.

This is not all gloom and doom, said McCune. There might be some positive impact if leaders start to get a better understanding of the economics of their organization, or direct their attention more to efficiencies and assurances (for donators).

Unlike many for-profit businesses, nonprofit organizations are more apt to be managed by individuals who are less skilled in financial management than they are in promoting the organization's mission. Since nonprofits often operate on a little money and a lot of volunteerism, in past years managers may have taken a more relaxed approach to establishing and implementing internal controls. This has left some nonprofit organizations financially vulnerable and therefore unattractive to donors.

More private companies and nonprofits are beginning to focus on efficiency and internal controls, said McCune. Boards of directors are also taking a closer look at corporate governance and internal controls. This is high in the public eye - (management) is feeling some pressure to make sure their internal controls are up to standard.

Though difficult to implement at first, the stricter standards will prove to be a good thing both for the economy and for society as a whole, said McCune. I hope to see companies take the opportunity to not only comply with the requirements of Sarbanes- Oxley, but to really extend that a little bit and add value to their organizations, look at efficiency and financial controls and operations.

When businesses operate more efficiently, profits increase, and the more efficient nonprofits become, the farther donations can go toward remedying social ills.

The Sarbanes-Oxley Act was signed into law on July 30, 2002, inspired by the corporate and accounting scandals of Enron, Arthur Andersen and others. After just a year and a half of implementation, the legislation has already had a profound effect on how business is done. Many publicly traded companies have restructured their boards, revised their accounting practices and updated their ethical guidelines.

Sarbanes-Oxley is most likely creating the desired effect in making businesses realize that very strong responsibilities come with being a public company, and that at the end of the day, accountability stops at the desk of the CEO, who can now be found criminally liable for firm actions, said Grant Thornton CEO Edward Nusbaum.

While nearly all the provisions of the bill apply only to publicly traded corporations, the passage of this bill should serve as a wake-up call to the entire nonprofit community, reads a joint report issued by BoardSource (formerly the National Center for Nonprofit Boards) and Independent Sector, a coalition of nonprofits and corporations.

During these months of intense corporate scrutiny, the Act has also forced the nonprofit sector to analyze its board practices and methods of operation. …

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