If you sit on the Board of a not for profit, or NFP, consider yourself in the questionable company of all the Enron executives and Martha Stewart. That’s right, you are suspected of lying to your auditors, suspected of financing offshore terrorists or suspected of money laundering, among other felonies. Things have gotten pretty bad when the sincere folks who serve in the charitable world have no better reputation than a drug trafficker. I started out angry that my good work and community service should be so suspect. But after reading what is possible under the protection of NFP status, my anger gave way to great sadness. I came across a statement by United Way National President Brian Gallagher, as he stated, “ …..changes in nonprofit accountability have to be made in order to restore trust.”
Where and when did we NFP’s lose trust? And how can that trust be restored on a community level? One of the first steps seems to be mandated government action. I have only two words for you – Sarbanes-Oxley. This is a piece of federal legislation called “The American Competitiveness and Corporate Accountability Act of 2002. “ Since sincerity and piety, honesty and integrity, respect for others and good conscience have been purged from corporate America, something seemed to be needed to revive those ideals. Of course, the solution is federal legislation! What? Does it seem possible that a body that thrives on insincerity, lack of integrity and absence of conscience can address corporate felons? Who knows? But we do know that what’s good for the goose is good for the titmouse, or something like that. So for all the corporate felons still at large and for those (Martha, this means you) who have new TV shows scheduled for Spring release and for all the NFPs who fund graft, corruption and terror, Sarbanes-Oxley is for you. While the lawyers and CPA’s draft new philosophies and yet undeveloped policies to circumvent the legislation, we small businesses and smaller NFPs will do what we always do – follow the laws and comply while we wonder why doing honest “for profit” and “non profit” work seems to be punishable by federal intrusion.
What does the Sarbanes- Oxley Act (SOA) mean to you? More work, more monitoring and more money to comply. As a NFP, your Board should be working on two provisions in this act. The first is “Whistle Blower Protection.” An NFP should have appropriate financial policies in place to assure staff, members and donors that funds are monitored, managed and spent appropriately. The whistle blower provision allows someone to challenge, or call into question any financial or management practices. It then allows protection for the whistle blower. An NFP responds to this provision by proactive financial management. Get you books and financial policies in order. If your NFP has an audit every year, the auditor may be suggesting activities or policies that will help your agency design a system of open, understandable management and tracking that will encourage donor and staff trust. Then, develop and adopt a formal “Whistle- Blower Policy.” This policy should have a method for dealing with complaints and should prevent retaliation to anyone who “in good faith” calls your NFP practices into question.
The other provision of SOA is “Document Destruction.” This provision deals with the destruction of litigation-related documents. Enron sure has added a lot to the meaning of “Best Management Practices!” An NFP now must have a written, mandatory document retention and periodic destruction policy. The National Council of Nonprofit Associations has developed a list of types of documents with minimum requirements for length of preservation. They caution that their presentation is a sample and suggest that you consult your attorney for issues specific to your NFP. But here are some areas familiar to all NFPs. Documents such as deeds, mortgages, year end financial statements, minute books, charter and retirement and pension records are records that are kept permanently. Keep bank statements and expired insurance policies for three years. Duplicate deposit slips can go after two years, while payroll records, time sheets and withholding tax statements should hang around for seven years.
All in all, this legislation probably demands of NFPs somethings that are good business practices. If your NFP house is in order, Sarbanes Oxley will be a blip on your radar, on the other hand, if your NFP is a little disorganized, this legislation sets out some standards to help get you on track. When your organization is distracted by disorganization, it costs money in staff time, donor distrust and board mismanagement.
For further information, go to www.independentsector.org/issues/sarbanesoxley.html. There is a lot of information and some pdf files to download regarding this legislation and impact on your NFP. In addition, Henry Johnson at United Way has a great fact sheet from the above website as well as some sample policies. Just tell him I told you to call.