| Summer 2005 |
Nonprofit Advisor
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Best Practices Under Sarbanes-Oxley: Lessons
Nonprofits Can Learn
While the Sarbanes-Oxley Act of 2002 applies only to publicly
traded companies, it does set a standard of internal controls that
all companies - including non-profits - could do well to follow,
including:
- Up-the-Ladder" reporting requirements for accounting and other financial
irregularities, and
- Establishment of internal audit and governance committees.
Who Cares About Nonprofit Accountability?
Certainly the Internal Revenue Service, the U.S. Treasury Department and
various state attorneys general do. In fact, some states have already proposed
and, in some cases, enacted legislation or administrative rules designed to
identify and enforce best practices in governance for nonprofits.
What You Can Do
- Form (and Use!) an Independent Audit Committee. As an operating arm of
the governing board, an audit committee's principal roles include:
- Overseeing accounting and financial-reporting activities (including an
understanding of the organization's internal controls).
- Managing the auditing process from the organization's point of view
(through engaging the independent auditors and meeting with them
frequently).
- Being aware of the potential for fraud within the organization.
- Helping to define and monitor the ethical standards that the board has
established for the organization to follow.
- Utilize Independent, Outside Auditors. The audit committee should have
sole responsibility for hiring the outside auditor (separate from the one who
keeps the organization's books) and meeting with the auditor without staff
present to review the audit's findings.
- Release Timely and Accurate Financial Statements. In order for Form 990 and
financial statements to be filed in a timely manner, your board and managers
must first determine precisely what accounting and financial information (and
what format) is the most valuable for stewardship purposes. This may mean
jettisoning old reports, and the ways of preparing them, and crafting new
ones. Here, a workable records-retention policy might be in order. After that
comes an evaluation of your systems and their ability to generate the required
data.
- Watch Insider Transactions. If your organization engages in a transaction
with a "disqualified person," (e.g., a loan to a director or officer) you
should have a clear conflict of interest policy governing such activities.
And, to be certain that internal controls are adequate and operating
efficiently, your governing board must first understand the controls. A
regular and thorough review can go a long way toward fostering such an
understanding.
In the end, nonprofits can certainly learn a thing or two from Sarbanes-Oxley
legislation. After all, who would argue the value in taking steps to ensure that
your organization is managed efficiently and effectively, and that your assets
are properly protected?
You can count on our experienced professionals for help with all the elements
that support solid and transparent corporate governance.
Editor's Note: Bober, Markey, Fedorovich
& Company frequently works with clients on matters such as
this. Please call your partner / manager contact if you would like assistance in this area.
The Nonprofit Advisor is produced quarterly by Bober, Markey, Fedorovich
& Company's Nonprofit Services Team. If you would like additional information about the services that we can provide to nonprofit organizations, please call or email our team leader, Lori A. Sheets, CPA at 330.762.9785 or
loris@bobermarkey.com.
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