Applying SOX for the Nonprofit Arena

Nonprofits realize that even a hint of scandal can send donors and also other funding sources scurrying. Give some thought to what occurred in the Red Cross when the well-intentioned organization implemented some funds for victims of your September 11, 2001, terrorist attacks for other worthy purposes. This violation of your donor’s trust and self-confidence and accounting protocols landed the venerable Red Cross on the front page of just about every newspaper inside the nation. It also led to a chain of events that ultimately triggered its director to resign in an effort to restore donor self-confidence. Similarly, potential donors of your United Way all across the nation had the privilege of reading about a scandal at a neighborhood chapter involving large-scale misappropriations of donor funds.

While only two provisions of SOX straight apply to nonprofits, its passage has rocked the nonprofit community with discussions about nonprofit accountability and about no matter if nonprofits will need to adhere to specific provisions of your Act either on a voluntary or mandatory basis. The fact is, Republican Senator Chuck Grassley of Iowa not too long ago named for equivalent scrutiny of nonprofits. The Senate Finance Committee has issued at the least one particular draft paper calling for stronger nonprofit governance, and it has publicly debated a few several proposals. Efforts to extend provisions of SOX to nonprofits met with concern, yet, as a result of the more charges it would impose on smaller nonprofits.

Countless scandal-skittish states have proposed or passed regulations that extend provisions of SOX (or SOX-like provisions) to nonprofit organizations. As an example, the California Nonprofit Integrity Act of 2004 calls for charities with gross revenues of $2 million or even more to possess an audit committee.