The Sarbanes-Oxley (SOX) bill, introduced by Sen. Paul Sarbanes, D-Md., and Rep. Michael Oxley, R-Ohio, was enacted in 2002 to increase corporate responsibility and to curtail accounting scandals. But the impact of the legislation is not limited to public companies, its main target.
The only direct effects of SOX on associations relate to document destruction and “whistleblower” protections, explains Joshua Grimes, an attorney who works with associations. However, because many association board members work, or have ties, in the corporate world, the SOX regulations aimed at public companies will likely translate into “best practices” for the nonprofit sector, he says.
“There's this climate of disclosure now, and I think it's very likely that associations should expect more questions about their spending from their board members,” he says, and that includes meetings and convention spending. For example, a board member unfamiliar with the business might question site visits or food and beverage costs, he says.
“The dilemma for the industry is that people want the planner to do those things,” Grimes says, “because if [attendees] are going to invest their time and energy to go to a particular meeting, they want to know that it is being done the right way.…But if someone's looking to find a problem, the budget that meeting planners work with is sometimes suscep-tible to question.”
Grimes suggests several steps associations can take to improve governance. One is to create a conflict of interest policy for board members. Another is to set up an audit committee to oversee the records and finances and to hire outside independent auditors to conduct an annual review. A third is to file tax forms on time and make them available for public disclosure.“Delaying making that available and delaying finishing it raises an impression of bad accounting,” he says. “The key is to do what helps people have faith in the organization.”
John Graham, president/CEO, American Society of Association Executives, addressed the Senate Committee on Finance on the topic in June, saying two areas in particular demand attention from nonprofits: financial monitoring and disclosure, and codes of ethics and conflicts of interest. A “vast majority” of nonprofits have “embraced their responsibility to institute governing practices that ensure public trust,” he wrote in a June 22 letter to the committee. ASAE is about to release a report on the subject called “Changing Expectations For Nonprofit Organization Governance.” For more information, visit www.asaenet.org.