For Improved Nonprofit Transparency Look to the Sarbanes-Oxley Act

By January 16, 2014Nonprofit

iStock_000022227728XSmallThe Sarbanes-Oxley Act or “The American Competitiveness and Corporate Accountability Act of 2002” was originally passed to address corporate malfeasance but has since been used by many organizations to improve their nonprofit transparency and internal controls.

The components of the Sarbanes-Oxley Act that are relevant to nonprofits are:

  • The Act governs the Board of Director’s Audit Committee. It requires that each committee member be on the board and that each member receives no compensation or benefit from the company. Also, each audit committee is required to have a financial expert.
  • The Act governs the responsibilities of auditors. The lead partner of the auditing company is made to rotate off audits every five years. In addition, non-audit services cannot be provided to the company during the audit. The audit firm is also required to report to the auditing committee critical accounting policies and procedures.
  • The Act requires the chief financial and chief executive officers certify the company’s financial statements, attesting that they are appropriate and accurate. Nonprofits are encouraged to have a capable chief financial officer to certify the financial condition of the company. The CEO will ultimately be responsible but most haven’t the knowledge needed to sign off on financial matters.

Some other points of interest for the nonprofit in the Sarbanes-Oxley Act include:

  • Disclosure or transparency to the public.
  • Whistle-blower protection.
  • Insider transactions and conflicts of interest.
  • Document destruction.

Nonprofit transparency is such a crucial part of the nonprofit organization in this day and age due to the ever watchful eye of the wary public. The Sarbanes-Oxley Act can be used as just another guide to help your nonprofit organization reach its goal of nonprofit transparency that will bolster your reputation and ensure trust with donors and your supporters. If you have questions and/or concerns about your organizations nonprofit transparency feel free to contact us.