Question

Based on "The Sarbanes-Oxley Act and Implications for Nonprofit Organizations" :

What are the barriers to implementing those recommendations of each section? How can the barriers be overcome? What is the role of executive leadership in implementing these best practices?

Answer 1

Sarbanes-Oxley Act (SOX) law requires that publicly traded companies adhere to significant new governance standards that increase board members' roles in overseeing financial transactions and auditing procedures.
While not all nonprofits conduct outside audits, most nonprofit boards have established one or more financial committees (finance, Audit or investment) for the purpose. In those organizations, the board has a separate audit committee or subcommittee that undertakes annual audits, particularly in medium to large nonprofit organizations. Most of the nonprofit organizations review their practices themselves to ensure the independence of the audit committee is followed. Organizations provide additional liability protection for volunteer directors that may be lost if the directors are compensated for their service. As a matter of fact, not all nonprofits conduct outside audits, most nonprofit boards have established one or more financial committees as discussed above.
Main Barriers to implementing SOX recommendations of each section for Non Profits include the mandate of SOX Compliance which involves the law applicable only to publicly-traded corporations. Non Profit organizations do not have any stringent regulations to follow, neither these are liable for tax payments to the federal government or IRS. Most of the Non-profit organizations are exempted from Regulatory filings and disclosures because of the objective and purpose of it being non-profit, and usually files Form-990 for information purpose.
There are multiple ways to overcome the barriers and the role of executive leadership in implementing these best practices would probably include the following:
-   Non-profits’ leadership should have an audit committee and should separate the audit committee from the finance committee – segregation of operations and compliance functions.
-   All nonprofits should ensure that no members of staff, including the CEO, serve on the audit committee, although it is reasonable to have the CFO provide staff support to the audit committee.
-   The management or Leadership should make sure that auditing function has the requisite skills and experience to carry out the auditing function for the organization and that its performance is carefully reviewed.
-   Orientation of Leadership & Board should include financial literacy training on Corporate Governance and Compliance functions.
-   Non-profits board should have available financial expertise, professional accreditation and membership organizations of accountants should require CPAs to participate in a regular board service programs.