While for-profit corporations face the brunt of the requirements imposed by the 2002 Sarbanes Oxley Act, non profits are also affected. Two provisions of the legislation that apply to all organizations whether non profit or for-profit, include:
- Whistle-blower Protection: New protection in Sarbanes Oxley makes it illegal for a corporate entity to retaliate against any employee who reports suspected illegal activity by their employer.
- Document Destruction: It is illegal to destroy or alter any document to prevent its use in an official proceeding (i.e. federal investigation or bankruptcy proceedings).
Implications of Sarbanes Oxley on Non Profits
While the immediate implications of the Sarbanes Oxley Act are not as far reaching for non profits, the legislation has created an increased amount of attention on the accounting practices of non profits.
IRS commissioner Mark Everson commented on the accountability of non profits during a U.S. Senate Finance Committee hearing on Charitable Giving Problems and Best Practices, stating, “if the abuses [of non profits] are left unchecked, I believe there is the risk that Americans not only will lose faith in and reduce support for charitable organizations, but that the integrity of our tax system will be compromised."
As a result, it was recommended that non profits undergo a five-year review of IRS tax-exempt status, and improvements should be made to the scope and quality of form 990 and financial statements, and increased accessibility to a non profit’s financial records.
With federal and state imposed accountability mandates on the rise (like those in Sarbanes Oxley), non profits are being encouraged to:
- Develop an independent audit committee
- Have top management carefully review the Form 990 or 990-PF before it is submitted
- Make financial statements readily available to the public
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