Sarbanes-Oxley Act: Nonprofits
Scope of the Law
Most provisions of the Sarbanes-Oxley Act apply only to publicly-traded companies. However, nonprofits should consider the Act’s enhanced penalties for obstruction of justice, document tampering and impeding of official proceedings. They should also consider whether whistleblower provisions — retaliation against informants — would be applicable to a nonprofit, as well as the act’s prohibition against conspiracy to commit fraud and its increased penalties for mail and wire fraud.
State Corporate Governance Proposals and Bills – 2004
The National Council of Nonprofit Organizations has created a guide for State Law Nonprofit Audit Requirements.
Independent Sector has published Sarbanes-Oxley Act and Implications for Nonprofits, a checklist for nonprofits and foundations includes:
- Insider Transactions and Conflicts of Interest
- Independent and Competent Audit Committee
- Responsibilities of Auditors
- Certified Financial Statements
- Whistle-Blower Protection
- Document Destruction
Boardsource Weighs In
Boardsource, formerly the National Center for Nonprofit Boards, has published The Sarbanes-Oxley Act and Implications for Nonprofit Organizations. Here’s an excerpt:
While nearly all of 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. If nonprofit leaders do not ensure effective governance of their organizations, the government may step forward and also regulate nonprofit governance. Indeed, some state attorneys general are already proposing that elements of the Sarbanes-Oxley Act be applied to nonprofit organizations.
Nonprofit leaders should look carefully at the provisions of Sarbanes-Oxley and determine whether their organizations ought to voluntarily adopt particular governance practices. This report will review those provisions and assess their relevance to nonprofit organizations.