Transparency a challenge for nonprofits

By Todd Cohen

Good behavior is critical to nonprofits, but many would be hard put to comply with a law Congress passed in 2002 to improve behavior among for-profit corporations.

The Sarbanes-Oxley law, a response to corporate scandals and wrongdoing, requires better financial reporting and disclosure by corporations.

The law has prompted many nonprofits to reexamine their own practices, with some opting to adopt parts of Sarbanes-Oxley.

In some states, lawmakers and regulators are considering tougher regulation and policing of nonprofits.

But a new Urban Institute study suggests that a key provision of the law would be tough for many nonprofits to adopt.

That provision requires that publicly-traded companies – but not nonprofits – have an independent audit committee with at least one financial expert and no company employees.

Only 20 percent of over 5,000 nonprofits responding to the Urban Institute survey said they had an independent audit committee, and just over half of those without an audit panel, particularly smaller nonprofits, said it would be difficult to create one.

As nonprofits and regulators consider how to strengthen financial reporting, they should recognize that while all nonprofits should be more open about finances, one size may not fit all.

Todd Cohen is the Editor and Publisher of the Philanthropy Journal.

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