The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents a major change to federal securities laws. It came as a response to the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Effective in 2006, all publicly-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the Securities and Exchange Commission (SEC).
Provisions of the Sarbanes Oxley Act (commonly-referred to as “SOX” and sometimes as “SarbOX”) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. SOX is all about corporate governance and financial disclosure.
It is generally accepted that while SOX currently has specific regulations only for publicly-held companies in the United States, all American businesses, for profit and nonprofit, will in some manner eventually be affected by its provisions. The purpose of this paper is to summarize the Act and suggest ways in which it impacts or will impact the nonprofit community relative to employees, volunteers, board selection, and best practices.
For purposes of this article, “volunteer” will be synonymous with “employee.” Non-American readers will find the last section of the article, “Broader Interpretations for Nonprofits,” useful for any country.