Sarbanes-Oxley in the Non-Profit World

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Sarbanes-Oxley requirements and the burden of complying with them generally are associated with large, publicly traded companies. So far, the small-business lobby has convinced the Securities and Exchange Commission that smaller publicly traded companies need more time to prepare for compliance, and few provisions in the act expressly apply to non-profit organizations. That doesn't mean, however, that non-profits are completely in the clear.


In an interview with The Metropolitan Corporate Counsel, Mark E. Chopko, a partner at the law firm of Stradley Ronon Stevens & Young, says non-profits bear essentially the same regulatory burden as for-profits:

There has been a dramatic increase in accountability in recent years. This is driven from a number of different sectors, including the IRS, the state attorneys general, the press, major donors and the general public. These are constituencies who want to know where the money is going, how it is spent, how much actually gets to the desired beneficiaries and so on.

Even though Sarbox doesn't specifically apply to non-profits, the principles behind the law are a "compendium of best practices in corporate governance" that can apply to for-profits and non-profits alike. And many accounting standards come from Sarbanes-Oxley as well, Chopko says. As a result, and in response to contributor demand for increased accountability, many non-profits voluntarily comply with Sarbox requirements.


The Sarbox-inspired push for accountability also means that non-profit board members must be prepared to commit time and skills to their responsibilities.


Unlike their counterparts on for-profit boards, however, Chopko says most potential non-profit board members are not dissuaded from service by the greater liability risks that accompany Sarbanes-Oxley requirements.