Nonprofit Times / Sarbanes Oxley

The NP Times has a free eNewsletter that almost always has something interesting and pertinent to financial management. Below is an excerpt from the latest issue that deals with SOX issues. Below that is the link to take you to sign up for the newsletter.

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Boards ... 5 Sox-related issues you need to analyze

Very little of the Sarbanes-Oxley Act of 2002 (SOX) applies to nonprofits, but it would be wise for organizations to follow many of the best practices that have emerged from the legislation.

The portions of SOX that affect nonprofits deal with policies about document retention and whistleblower protection. But the sweeping reform that aimed for greater accountability and transparency also offers best practices that can benefit any nonprofit organization.

Peggy M. Jackson and Toni E. Fogarty, in their book "Sarbanes-Oxley and Nonprofit Management," outline some of the initiatives that can improve the performance of a nonprofit board and its staff:

1. Board recruitment and retention. Sitting on a board is no longer a hobby. It's serious work and demands complete attention to the task. Boards shouldn't be rubber stamps for executive directors, and they can't have passive people or those who lack the requisite skills to provide appropriate governance and oversight, according to the authors.
   
2. Audit committee. Nonprofit boards need to have a separate audit committee that includes at least one board member who is a financial expert. The committee must ensure that auditors are not also engaging in additional services, such as consulting, for the nonprofit, and that either the auditing firm, or at least the lead auditor, is rotated every three to five years.
   
3. Financial literacy. A nonprofit might have to create a training program so all board members know how to read financial reports accurately.
   
4. Code of ethics for board and senior management. Boards should adopt a strict policy prohibiting personal loans to any director or officer and a human resources policy that prohibits lending money to the chief executive officer, executive director, chief financial officer or other staff.
   
5. Conflict of interest policy. Any conflict of interest between a board member and a nonprofit should be documented through a conflict of interest statement and process.

Alan
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