| Winter 2005 |
Nonprofit Advisor
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Lessons From Sarbanes-Oxley: What Can Your Organization Learn?
Sarbanes-Oxley, the landmark financial accountability and
transparency legislation for corporate boards, does not specifically
target the nonprofit community. Even so, because charities count on
public goodwill, many experts predict that similar laws will
eventually be applied to nonprofits, too.
Sarbanes-Oxley or not, every nonprofit should function as if it were
operating in a glass house. The more information your organization
shares (within reason), the easier it is for the public to get to
know you and determine whether you are worthy of support.
Here are some ideas for cleaning your windows and letting the sun
shine in:
Have an annual audit of your organization. Nonprofit audits
currently are generally not regulated by government entities —
except for those organizations that receive specified levels of
government funds. But strict self-regulation and regular independent
audits send a message that ethical standards and accountability are
taken seriously by your organization. A properly conducted audit is
a true confidence builder for constituents and supporters. Follow
these steps to set the stage for your audit:
- Have the board — not the staff — hire the external
auditors.
- Form a separate audit committee whose members are not
compensated for their board service and who have direct access to your
organization’s financial information.
- Charge staff with the responsibility of providing all
the needed reports, documents and information that can help the board and,
particularly, the audit committee do its work.
Train your board. As the oversight body,
your board is already responsible for ensuring that proper policies
and processes are in place to create an environment of ethical
behavior. In the wake of Sarbanes-Oxley, many potential and current
board members have a newfound awareness of their liability as board
members. Address their concerns by providing some basic training on
federal and state laws as they relate to the duties of board
members. Make sure board members also know that it is important to
attend and prepare for meetings, ask questions and address
potentially unsound or imprudent decisions.
Make sure “whistle-blower” policies are understood.
Unfortunately, numerous nonprofits are still unaware of the clauses
in the Sarbanes-Oxley Act that apply to nonprofits (as well as to
public corporations). Every nonprofit should get active in creating
its own whistle-blower and document destruction policies. The
whistle-blower policy needs to provide a safe and confidential
method for a staff member to express concerns about questionable
processes or to report criminal, fraudulent or unethical acts. The
policy must also guarantee that the individual – the Whistle-blower
– is not punished in any manner for reporting. Let workers know they
are protected and encouraged to speak up. Just as important, remind
them that the decision to stay silent can also equal tacit consent
to activities that may be illegal, unethical or simply against
office rules. Document destruction policies need to set clear
guidelines for the handling, storage and preservation/destruction of
your organization’s records and documents.
Create an explicit conflict of interest policy. Under
Sarbanes-Oxley, for-profit corporations must have outsiders on their
boards, and they often turn to nonprofit leaders. These corporate
boards find nonprofit leaders can bring an added perspective and
objectivity. If one of your board members is tapped for such a
position, you need to consider whether that person will lose his or
her independence as a board member (for example, what if the
corporation makes a sizable contribution to your nonprofit?). To
protect your organization, draft a very straightforward conflict of
interest policy.
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
lsheets@bobermarkey.com.
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