Implementing Sarbanes Oxley Act

In most cases, organizations have been publicly criticized because of their inability of enhancing governance structure that depicts their accountability and transparency. Due to such acts, most organizations have lost investors and donors who felt betrayed by the organization’s undertaking. Instilling public confidence and loyalty among the clients and stakeholders clearly indicates the positive impact of enhancing accountability and transparency within organizations. In an effort of curbing such a menace, various states have enacted and implemented diverse legislation intended to create and enhance public confidence by promoting organization’s accountability and transparency. The Sarbanes-Oxley Act is one of such acts that were legislated with primary goal of enhancing public trust towards organizations.

However, the Sarbanes-Oxley Act, which was enacted to apply to for-profit organizations, tends to promote accountability and transparency of the non-profit organizations as well. The paper discusses the role of financial experts and professionals in implementing the Sarbanes-Oxley act so as to create governance, accountability and transparency of the organizations. It also discusses on how to develop internal and external risk audit procedures so as to fully implement the act in the non-profit organizations.

According to Moore (2006), the Sarbanes-Oxley Act is a corporate law that was passed and adopted in 2002 due to both the corporate and accounting scandals that had marked the corporate sectors. He points out that the law was enacted so as to rebuild public trust and confidence in the corporate sectors. He notes that the act stipulates governance guidelines and standards that require accountable participation of each corporate sector’s member in not only overseeing effective financial transactions, but also in equitably enhancing auditing protocols.

Moore (2006) points out that even though almost the entire Sarbanes-Oxley Act applies to the pubic commercialized corporations, the enactment of this act can also serve in the best interest of non-profit organizations. This has been evident among most of the states’ legislatures who have passed legislation that incorporate elements or provisions of the Sarbanes-Oxley Act distinctly apply to the non-profit organizations. According to him, the corporate leaders of the non-profit organizations have the primarily role in ensuring that their organizations fully adopt all the provision of this law into their organizations.

As pointed out by Lee & Love (2012), most of the highly publicized scandals that have marked the non-profit organizations have been based on excessive compensation to the directors and other internal executives. This embezzlement of the donation or charitable funds has presented a bad image of these non-profit organizations, thereby demanding the need for leadership scrutiny in enhancing accountability. They point out that non-profit organizations can fully implement the Sarbanes-Oxley act if they effectively enhance internal and external audit processes. They note that most of the non-profit organizations normally have limited number of financial experts such as CFOs or CEOs; therefore, they are unable to effectively account for their organizations’ finances, which, in turn, withdraws public trust towards the organizations. According to them, the financial experts and directors play a key role in reforming the governance structure of these non-profit organizations by sparking public trust and confidence.

It is important to note that, non-profit organizations can only implement the Sarbanes-Oxley Act by engaging internal and external auditing, hiring CFOs and CEOs, who possess certified accounting or finance professionalism. The paper discusses the role of these financial experts and professionals in implementing the Sarbanes-Oxley Act so as to create governance accountability and transparency of the organizations. It also discusses on how to develop internal and external risk audit procedures in order to fully implement the act in the non-profit organizations.

The Impact of Hiring of CFOs and CEOs Nonprofit Directors

According to Moore (2006), hiring of a Chief Financial Officer (CFO) or a certified finance or accounting chief executive officer (CEO) by the non-profit organizations can enhance financial accountability and procedure. He notes that one of the provisions of the Sarbanes- Oxley Act stipulates the need to incorporate independent board members who are not legible of receiving compensation either directly or indirectly from a certain non-profit organization. As pointed out by Lee & Love (2012), non-profit organizations require directors who are obligated to manage and protect the organization’s finances with a view of creating public trust and confidence. They note that this can only be achieved if non-partisan and independent certified financial and accounting managers are envisaged in the organization’s governance structure.

Lee & Love (2012) point out that hiring of chief financial officer enables the non-profit organizations to manage and offer accountability to financial risks within the organization. They note that hiring of CFOs and CEOs, who specialize in finance or accounting, is useful as they utilize their professional standards in enhancing financial instruments, thereby promoting economic value of the organizations. The hired CFOs and CEOs with illustrative professionalism in fiancé or accounting form the organization’s independent body; as a result, they are able to incorporate financial instruments that effectively manage the non-profit exposure to financial risks.

According to Lee & Love (2012), non-profit organizations are normally obligated for tax exempt based on their ability to comply with the Internal Revenue Code (IRC). They point out that failure of the non-profit organizations to adhere and meet the standards, as stipulated by the IRC, can subject the organizations into financial risks based on intense taxations. According to them, section IRC 501 c exempts the non-profit organizations from tax if they are organized in a manner which does not grant compensation to their shareholders, either directly or indirectly. This implies that non-profit organizations, which incorporate compensation to their shareholders, are illegible to the IRC standards and can be subjected to taxation process, thereby hindering more donations.  Therefore, they note that hiring of the CFOs and CEOs, who have certification in finances or accounting, aids the non-profit organizations in creating independent executives who are not the organization’s shareholders, thereby comply with the IRC standards.

On the other hand, Lee & Love (2012) point out that the duty of promoting care, loyalty, and enhancing good faith among the donors and the public is an essential element envisaged in the Sarbanes-Oxley Act. They note that these fiduciary principles can only be enhanced if effective and independent financial experts, such as CFOs and CEOs, are incorporated within the non-profit organizations. They point out that the CFOs are not only responsible for coming up with and presenting accurate financial statements, but are also highly experienced in ascertaining the integrity of the documents presented. This enables the non-profit organization in adopting effective governance structure that is more accountable.

According to Moore (2006), most of the CEOs normally lack adequate financial skills and subsequent organization’s events of interest. This normally puts the non-profit organizations at the lower edge of excelling in fundraising events. He point out that, by hiring a CEO who has certification in financial prowess, the non-profit organization is able to convince the donor and other funders that their financial donations are effectively managed. In doing so, the CEO does not only present his or her accountability, but rather demonstrates good stewardship that encompasses the management of the organization’s resources. Even though the Sarbanes-Oxley Act portrays both the CFOs and CEOs as obliged to ensure that laws are properly spearheaded, they are entitled to fully comprehend the organization’s financial statement (Moore, 2006).

Lee & Love (2012) points out that the hiring of CFOs and CEOs assists the non-profit organizations in complying with the Sarbanes-Oxley Act of having certified financial statements. According to them, the CFOs and CEOs are obliged to ensure that the signed off financial statements are accurate, complete, and produced in due time. This is one of the organization’s financial accountability strategies that is stipulated in the Sarbanes-Oxley Act. They note that hiring of CFOs and CEOs will enable the non-profit organizations to accurately and completely sign off Form 990 which discloses the procedures that were engaged in determining the eligibility of a CEO and internal executives for compensations. They point out that the hired CFOs and CEOs ensure that Form 990, which is a tax return, is completely signed off and they clearly scrutinize the non-profit directors’ financial compensations.

For instance, the IRC Form 990 normally requires the non-profit organizations to elaborate and project the number of independent members who had approved their executive compensation model (Lee & Love, 2012). They note that the hired CFOs and CEOs form effective independent voting members who not only ascertain the accuracy of the Form 990, but also write a conflict of interest policy framework for the organization. This is intended to enable the shareholders of the non-profit organization, including the directors, in presenting their annual financial interests, which can generate conflict if not properly projected. They point out that CFOs and CEOs will ensured they present self-interested financial dealings that are practiced by the directors and other internal executives.

Developing Internal and External Auditing Process

According to Moore (2012), an internal audit is an independent decision making processes that provides assurance to the donors, investors, and the public that their funds are adequately and efficiently controlled. He points out that internal and external risk auditing processes provide a procedural comparison of the non-profit organizations’ policy framework with required compliance demand, as stipulated in the Sarbanes-Oxley Act. He notes that developing effective internal and external audit processes will ensure that both the executive and board of directors are effectively advised on the operations of the non-profit organizations in line with the Sarbanes-Oxley Act.

As pointed out by Vachon (2012), a non-profit organization can effectively create opportunities of exploring donation approaches if they strategically interact with the for-profit organizations, such as the audit firms.  She notes that, in doing so, the non-profit organizations are able to learn and develop effective corporate management systems, thereby attracting more donors. She notes that these for-profit organizations will ensure that they effectively conduct internal risks audition of the non-profit organizations. On the other hand, Rowe (2012) notes that an internal risk audition is the financial risks’ assessment procedure that enables the internal auditors, the executives, and the oversight board design to come up with an annual audit strategy.  He notes that developing effective internal risk audit process enables the internal auditors to engage various stakeholders through interviews and providing relevant information. The obtained relevant information is then shared among the executive and board members from whom corrective actions that emulate the Sarbanes-Oxley Act’s provisions can be developed.

According to Rowe (2012), non-profit organizations should ensure that they develop internal and external auditing procedures where the auditing firms or persons are changed after five consecutive years. This is in line with the Sarbanes-Oxley Act’s provision which requires organizations to rotate their auditing partnering firms every five years. He points out that altering of the auditing firms or individuals every five years will prevent the possibility of the auditing firms adapting to the organization’s financial processes, thereby developing personal interest. In addition, he notes that altering auditing firms or individuals after the elaborated period will enable the non-profit organizations to access new ideas which, in turn, would enable them to be more accountable and transparent in their operations.

On the other hand, Nezhina & Brudney (2012) state that non-profit organizations should develop external auditing processes that would prevent the auditing firms from accessing non-auditing financial services. They note that these non-auditing services, which include denying the auditing firms’ access to financial information systems, legal services, and management resource services, are intended not to create conflict of interest between the auditing firms and the non-profit organizations. They point out that the committee in charge of audit can implement this by introducing a waver charge of 5% per cent on the non-auditing services that will add up to total payment conducted to the auditing firm. This will ensure that the auditing firms conform only to the auditing services, thereby preventing breaching of the non-profit organizations’ private issues, which can spark public condemnation.

Moreover, Moore (2006) points out that the non-profit audit firms should be able to establish and present to the audit committee a prevalent documentation of critical accounting and financial policies and processes the non-profit organizations engage into. He notes that these important accounting policies and processes should incorporate the methods being used, the assumptions, and how they go against the general accepted principle of accounting. For instance, presenting a critical accounting process that outlines the recommended policies to be used in restricting donations for a given intended purpose would enable the nonprofit organizations to implement such policies in order to enhance their accountability.

The Impact of Adopting Sarbanes-Oxley Act on Non-profit Organizations

According to Nezhina & Brudney (2012), the Sarbanes-Oxley Act has both positive and negative impacts on the non-profit organizations. They point out that the implementation of this act will enable the non-profit organizations to benefit from better financial and accounting controlling system. They note that this legislation offers transparency and accountability for non-profit organizations by reducing all related accounting risks that would subject the organizations to fraudulent activities. For instance, most of Georgia’s non-profit organizations denoted an improved financial management and accountability due to the implementation of the act by their organizations.

On the other hand, Nezhina & Brudney (2012) state that the adoption of the Sarbanes-Oxley Act by non-profit organizations normally rises their auditing expenses. They note that non-profit organizations, which are subjected to external auditing, are likely to incur increased auditing fees.  This can be due to relocation of non-auditing resources and services to organizational expenses.


In conclusion, the paper has highlighted the Sarbanes-Oxley Act as an essential law that promotes and enhances the accountability and transparency of non-profit organizations. It has pointed out the need for non-profit organizations to hire CFOs and CEOs who have certification in finance and accounting so as to ensure that the organizations’ financial state is effectively investigated and scrutinized. The paper has also pointed out the need to incorporate internal and external audit processes so as come up with effective financial obligations and policies that would create more accountability and transparency on the transactions of the non-profit organizations.

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