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Nonprofits adopting Sarbanes-Oxley

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By Todd Cohen

CHARLOTTE, N.C. — At Foundation for the Carolinas, employees are expected to promptly report possible violations of foundation policies and procedures, and any employee who retaliates will be disciplined and possibly fired.

At United Way of Central Carolinas, a 35-page document spells out policies for retaining and destroying records, including keeping minutes of volunteer meetings for a year, financial records for seven years, and personnel records and minutes of board meetings permanently.

Throughout the U.S., nonprofits are strengthening their reporting and governance policies to comply with the Sarbanes-Oxley law Congress enacted in 2002 in the face of corporate scandals like those at Enron and WorldCom.

While some provisions of Sarbanes-Oxley apply to publicly-held companies and nonprofits alike, a growing number of nonprofits are adopting other provisions that apply only to publicly-held firms because rising expectations from donors and nonprofit trade groups, and in anticipation that state and federal lawmakers and regulators might require nonprofits to comply with the law.

“It demonstrates to our donors and to our community stakeholders that we are good financial stewards of their money,” says Angela Hubbard, senior vice president for community building at United Way of Central Carolinas.

Sarbanes-Oxley requires nonprofits to establish a confidential mechanism to handle complaints by employees, or “whistleblowers,” and to set policies on retaining records, says Hubbard.

Nonprofits also should pay attention to four other provisions, she says.

Those require publicly-held companies to have an independent and competent audit committee; a certified financial statement signed both by the CEO and chief financial officer; procedures covering insider transactions and conflicts of interest; and policies for disclosure of internal controls or material changes in their financial condition.

A United Way audit committee, for example, includes a financial expert, reports directly to the board of directors and, to avoid potential conflicts of interest, is separate from the finance committee.

And Foundation for the Carolinas requires that the lead and reviewing partners of its auditing firm rotate off the audit every five years, says Alyssa Federico, vice president for operations.

United Way requires both its CEO and chief financial officer to sign off on financial statements, operates under a detailed conflict-of-interest policy that applies to its board and volunteer committees, and has a compensation committee, reporting to the executive committee, that sets market-based performance goals and metrics for its CEO.

And in addition to overseeing an annual financial audit, the audit committee oversees a continuing “internal-controls audit” that monitors internal procedures and processes, such as ensuring separation of responsibilities by the controller and chief financial officer for accounts payable and accounts receivable.

The whistleblower policy at Foundation for the Carolinas calls for employees to make internal reports of “concerns or potential violations” of organizational policy or applicable law, and says retaliation or the threat of retaliation “is itself a violation.”

“In the nonprofit world, we want to be as transparent as possible,” says Federico.

“Nonprofit organizations have the fiduciary responsibility of managing public contributions,” she says. “They should do everything possible to ensure the public’s trust of their abilities to do that.”

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