More nonprofits aspire to SOx accountability standards

More nonprofit organizations are trying to comply with the Sarbanes-Oxley Act even though the complex federal law primarily applies to sizable, publicly traded corporations.

Sarbanes-Oxley, or SOx, was the federal government’s 2002 response to corporate accounting scandals of the Enron and WorldCom variety. The law set stricter standards for accounting, auditing, corporate governance and board-member accountability.

Because of the time and resources it can take to comply, the law exempts companies with less than 500 shareholders of record and $10 million in assets. It exempts nonprofits for the same reasons, except for two provisions.

United Way of Treasure Valley President and CEO Sally Zive said the organization brought its policies up to SOx standards as soon as guidelines were issued.

Board members wanted to implement the policies as soon as possible, she said. The process took about six months.

“Transparency and accountability issues are critical to us,” Zive said.
“Donors are much more sophisticated than ever, and they’re demanding transparency and accountability to a great degree,” she said. “It’s important for us to earn and keep their trust, and this process is one important way we do that.”
Zive said United Way of Treasure Valley aims to lead by example. The organization has drawn on its own experience to help some smaller nonprofits develop their own new policies and procedures, she said.
Boise attorney Tom Chandler, of the Hawley Troxell law firm, follows Sarbanes-Oxley developments.
“It’s what I call a back-burner issue right now” for nonprofits, he said. “Having said that, there is an expectation that the larger nonprofits will enhance their governance and financial reporting. It’s not necessarily required, but everybody realizes it’s just something they need to do.”
Factors driving broader compliance – mandatory or voluntary – include recent state laws inspired by the federal law, a movement in Congress to give the Internal Revenue Code more SOx-like requirements for nonprofits, and trends in the make-up of nonprofit boards, Chandler said.
Many boards for the larger nonprofits include executives of publicly traded companies.
“They, in turn, are wanting to require nonprofits to adopt more stringent governance and financial statement standards,” Chandler said.
McMillen & Co. is a Boise registered investment advisor for clients including nonprofit organizations and wealthy families. The firm writes investment policy statements, and keeps clients aware of recent developments and trends by visiting with them and by writing white papers.
“Sarbanes-Oxley was developed for publicly traded companies, and is slowly trickling into the nonprofit part of the business world,” said Sara Patterson, a partner in McMillen Co.
The company is trying to increase awareness and promote voluntary compliance efforts, she said. It can refer nonprofit leaders to auditors and attorneys with expertise in Sarbanes-Oxley.
McMillen & Co. partner Mike McMillen said that over time, more nonprofits will adopt best practices set forth by Sarbanes-Oxley.
Members of southwest Idaho boards are increasingly aware of the law as well as the general movement toward stepped-up fiduciary expectations, he said.
In its guide to Sarbanes-Oxley, United Way of America said the law requires nonprofits to comply with document-destruction and whistleblower protection provisions. Local chapters should comply with the other 16 sections and subsections even though the law does not require compliance, the organization said.
Zive said the Treasure Valley chapter complies with all provisions except the one calling for separate finance and audit committees.
The United Way of America guide says this may not be practical for all local chapters.
The issue comes down to whether a local chapter has enough people to choose from in order to form two separate committees, she said.
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To contact the author, e-mail brad.carlson@idahobusiness.net