Sarbanes - Oxley Act and Implications for Nonprofit Organizations
In the midst of the corporate and accounting scandals that have erupted in past years, Congress passed far reaching governance legislation, the "American Competitiveness and Corporate Accountability Act of 2002", more commonly known as the "Sarbanes-Oxley" Act. It is a common misconception that this Act applies to only publicly traded companies, whereas this Act contains a number of provisions that are applicable to all corporations, for profit and not for profit.
There are two provisions of the legislation that apply to nonprofit organizations and these are:
- Whistle-Blower Protection - Act provides new protections for whistleblowers, making it illegal for an entity to retaliate against any employee who reports suspected illegal activity by their employer.
- Document Destruction - Act makes it illegal to destroy or alter any document to prevent its use in an official proceeding.
Whistle-Blower Protection
Written policies that are enforced by the executive staff and board send a message that misconduct will not be tolerated. These policies should cover any unethical behavior within the organization. Each organization must develop procedures for handling employee and volunteer complaints, including the establishment of a confidential and anonymous mechanism to encourage employees and volunteers to report any inappropriateness with the organization's financial management. No punishment for reporting problems is allowed. Nonprofit leaders must take any employee and volunteer complaints seriously, investigate and fix any problems or justify why corrections are not necessary.Document Destruction
Common sense dictates that organizations regularly need to shred or otherwise dispose of unnecessary and outdated documents and files, as long as relevant information is archived according to guidelines established by the organization. Because of current technology, electronic files can become complicated as we come to understand the relevance of the delete button as a permanent method of file removal. Each organization should have a written, mandatory document retention and periodic destruction policy. Such a policy also helps limit accidental or innocent destruction. The policy should also include guidelines for handling electronic files, back up procedures, archiving of documents and regular check-ups of the reliability of the system. If any official investigation is underway, management must stop any document purging in order to avoid criminal obstruction charges.Passing the Sarbanes-Oxley Act has been Congress' attempt to rebuild public trust in the corporate community. Nonprofits can benefit from this rebuilding by adopting policies and procedures that promote accountability and oversight within their organizations. Incorporating certain provisions of the Act just makes good business sense!
If you need assistance in drafting policies and procedures to address these areas or if you would like to discuss the impact on your organization, please contact our office at (813)229-2090 to set up a consultation.
