SARBANES-OXLEY ACT

Sarbanes-Oxley Act

Sarbanes-Oxley Act

Introduction

The Sarbanes-Oxley Act was signed into law in response to corporate scandals; the act was developed with an overarching aim of rebuilding public trust in the corporate sector (Board Source and the Independent Sector, 2006). The law is therefore, strictly applicable to publicly traded corporations. However, the legislation has two provisions that apply to all corporations including those with nonprofit status: prohibiting the destruction of litigation-related documents and protecting whistle blowers who speak out against fraud (Board Source and the Independent Sector, 2006). Furthermore, organizations such as Board Source and the Independent Sector recommend this legislation be viewed as a reference for the nonprofit sector as to how accountability should be addressed. The sections of this legislation regarding audit committees, the filing of financial statements, the approval of organizational loans to executives, and whistle-blower protection are of significance to the nonprofit sector with regard to conflicts of interest (Board Source and the Independent Sector, 2006).

Discussion

Title II of the Sarbanes-Oxley Act emphasizes that auditing committees be independent of the organization itself. Non-profits can look to this legislation as a recommendation that individuals on nonprofit audit committees should not be compensated for their service and should have no financial interest in the organization “or any other conflict of interest with any entity doing business with the organization” (Board Source and the Independent Sector, 2006).

A conflict of interest may also arise when certifying and filing financial statements. Section 302 of the Sarbanes-Oxley Act requires the chief executive officer (CEO) of a corporation to certify all financial reports filed. Organizations in the nonprofit sector are required to file the IRS Form 990. CEOs should fully understand the financial situation of their organization as presented on this tax form. As these documents are made electronically available to the public on a mass ...