Will non-profits be next focus of Sarbanes-Oxley?

• Author: Heffes, Ellen M.
• Position: Financial Reporting Select Issues Update

Corporate scandals that have affected companies such as Enron Corp. and WorldCom Inc. have vividly brought the issues of transparency and accountability to the forefront of the business world for public companies. But like their for-profit counterparts, non-profit organizations in the U.S. are also increasingly being pressured to answer to the general public.

Recent instances of fraud have affected such high-profile charitable organizations as the United Way, the American Red Cross and the Nature Conservancy. Although Sarbanes-Oxley rules currently apply only to publicly held companies, the character of the law applies to all organizations--and could, realistically, be mandated for the non-profit sector in the near future.

In fact, many industry insiders believe that this type of regulation will come sooner, rather than later. Taxpayers, regulators and legislators are calling for some type of formal regulation within the non-profit sector. And donors also increasingly want to know how much of their contributions go to aiding the actual cause. As a result, many private companies have adopted Sarbanes-Oxley practices at the advice of financial institutions (lenders) and others.

Anne Marchetti, practice director of Sarbanes-Oxley services at financial consultancy Parson Consulting, believes that non-profits that are not prepared for compliance could be severely challenged once these regulations take effect--much like the recent Section 404 compliance scramble by public companies.

Marchetti suggests that organizations take the following steps to help ease the transition into inevitable compliance requirements:

* Educate the...