SARBANES-OXLEY



How Does This Legislation Impact Health Care

How Does This Legislation Impact Health Care?

When discussing the Sarbanes-Oxley Act, it is worth noting that while all hospitals may not be affect by it - all nonprofit hospitals, clinic and healthcare organizations are exempt from corporate income taxes as well as state and local property taxes wherever they are located. Ironically, this exemption is may be more valuable to health entities located in most affluent areas because target population income is higher and property values are worth more. All else being equal, a hospital that provides little charity care and is located in a “desirable” location (in terms of property values) will receive a much greater financial benefit when its income and property go untaxed than a hospital that provides lots of charity care and is located in an 'undesirable' location. Thus, many suggest that current subsidies are 'upside-down' in that they are worth more to non-profit healthcare organizations that are likely to provide the least charity care. Of course, this irony is not addressed in the Sarbanes Oxley Act; at all!

Regularity compliance has always been an important part of the cost of running a business. Most market sectors, from healthcare and financial services to industrial manufacturing, are all subject to compliance and regulation by legislation and statute laws that impose demands on how they should conduct business and clearly state the penalties for non-compliance.

However, against a whole wave of financial scandals driven by fraudulent accounting practices that involved major US corporations such as Worldcom and Enron and Tyco, the US Senate and House of Representatives passed the Sarbanes-Oxley Act on 30th July 2002 to restore investor confidence and underwrite the integrity of financial information. One of the key sections is Section 404, although only 169 words in length, it lays out the requirement for the management of a US public company to report annually on the operational effectiveness of the company's internal controls over financial reporting. Additionally, the company's auditors must attest to and report on the management's assertion over the effectiveness of internal financial controls. Consequently, the legislation has the potential to have a profound impact on the governance and behaviour of any business with a US listing, including 470 non-US companies.

Sarbanes-Oxley now places the responsibility and accountability for the tracking of information for full day-to-day activities that have an impact upon financial performance very clearly upon the shoulders of the management teams of those businesses, with teeth that do bite - the CEO and CFO can be fined up to £3million, go to prison for up to 20 years or both.

Compliance with Section 404 requires that businesses now have to document and attest for the operational effectiveness of a wide range of processes that have an impact upon the accuracy of their annual financial performance and reporting. These include traditional financial processes such as accounts payable and receivables, but also covers those that have an indirect financial impact, for banking and financial institutions these include the processes around ...