It’s been several years now since the passing of the American Competitiveness and Corporate Accountability Act was passed (also known as Sarbanes-Oxley). Although not specifically written for non-profit corporations and organizations, there has been much discussion and much written about how parts of this legislation affect these entities.
A recent commentary from the American Bar Association’s website pointed to two areas in particular that definitely would apply to the operations of a not-for-profit organization.
The first area is that of recordkeeping, covered in Sections 802 and 1102 of the Act. Very basically, these sections relate to the fact that it is a crime to knowingly alter, destroy or conceal records or documents in order to obstruct an investigation or “proper administration” of a matter under the jurisdiction of a federal department or agency or filed under federal bankruptcy codes. It also makes it a crime to do the same “corruptly”, intending to “impair the object’s integrity or availability for use in an official proceeding”. It’s also a crime to obstruct, influence or impede the actual official proceeding.
The second area speaks to “Whistleblower Provisions”. This is covered under Section 1107 and makes it a crime to harm someone in retaliation for their providing “truthful” information that relates to the commission of a federal offense. These can include investigations by the IRS or EEOC. Obviously, this is the kind of situation for which there should be procedures set up detailing how employees can bring forward problems within an organization.
A book published a few years ago to address Non-profit Corporate Governance and the Sarbanes-Oxley Act outlines 10 “principles” that should be taken under consideration by non-profit organizations. The first five are outlined in this blog. The last five will be reviewed in next week’s blog post. The first five are:
- Principle 1 – Role of the Board: The governing board should oversee the operations in a way that assures effective and ethical management.
- Principle 2 - Importance of Independent Directors: These directors are important for assuring that decisions are made and judgments given that are free from undue influence.
- Principle 3 – Audit Committee: Organizations with enough funds to put one in place should have an audit committee composed solely of independent directors, assuring the independence of the organization’s financial auditors who review the organization’s critical accounting policies and decisions and the adequacy of its internal control systems, and oversee the accuracy of its financial statements and reports.
- Principle 4 – Governance and Nominating Committees: These committees should be made up of independent directors who can focus on core governance issues and the makeup of the board.
- Principle 5 – Compensation Committee: This committee should be made up of independent directors who will determine compensation for the chief executive officer, other executive officers, and assure compensation is based on actual performance of said officers.
Next week we’ll review the final five principles you should be considering in your organization based on Sarbanes-Oxley. What policies or procedures has your organization put in place in the last few years as a result of this important legislation?
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