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The Application of Sarbanes-Oxley to the Non-Profit Healthcare Sector center doc


The+Application+of+Sarbanes-Oxley+to+the+Non-Profit+Healthcare+Sector%0d%0aPresented+to%3a+American+Society+of+Law%2c+Medicine+%26+Ethics+and+Seton+Hall+University+School+of+Law+Health+Law+%26+Policy+Program+April+25%2c+2003+James+R.+Schwartz+Manatt%2c+Phelps+%26+Phillips%2c+LLP%0d%0a%0d%0a%0cI.%0d%0a%0d%0aIntroduction%0d%0a%0d%0a%e2%80%a2+Corporate+Responsibility+Initiatives+Apply+to+NonProfits+as+Well+as+For+Profits%0d%0a%e2%80%a2+%e2%80%a2+%e2%80%a2+%e2%80%a2+Bishop+Trust+AHERF+ALLINA+United+Way+of+the+National+Capitol+Area+%e2%80%a2+%e2%80%a2+%e2%80%a2+%e2%80%a2+Hershey+Trust+Health+Partners+Health+Midwest+CareFirst%0d%0a%0d%0a2%0d%0a%0d%0a2%0d%0a%0d%0a%0cII.%0d%0a%0d%0aThere+are+Consequences+for+Real+or+Perceived+Failures+in+Corporate+Governance%0d%0a%e2%80%a2+Bishop+Trust%0d%0a%e2%80%93+Criminal+Prosecution+(unsuccessful)+of+Two+Trustees+%e2%80%93+Forced+Resignation+of+Entire+Board+%e2%80%93+Restructuring+of+Trust+Through+Civil+Action+in+a+Manner+Inconsistent+With+Trust+Document%0d%0a%0d%0a%e2%80%a2+AHERF%0d%0a%e2%80%93+Criminal+Prosecution+of+CEO+-+CFO+-+GC+%e2%80%93+Massive+Civil+D%26O+Liability+Action%0d%0a3%0d%0a3%0d%0a%0d%0a%0cII.%0d%0a%0d%0aConsequences+(cont%e2%80%99d.)%0d%0a%0d%0a%e2%80%a2+ALLINA%0d%0a%e2%80%93+AG+%e2%80%9cCompliance+Audit%e2%80%9d+(no+lawsuit)+%e2%80%93+Resignation+of+Virtually+Entire+Board+%e2%80%93+Forced+Restructuring+of+Corporation%0d%0a%0d%0a%e2%80%a2+Hershey+Trust%0d%0a%e2%80%93+Proposed+Sale+of+Corporate+Assets+Blocked+%e2%80%93+Restructuring+of+Board+With+Resignation+of+Existing+Board+Members%0d%0a%0d%0a4%0d%0a%0d%0a4%0d%0a%0d%0a%0cII.%0d%0a%0d%0aConsequences+(cont%e2%80%99d.)%0d%0a%0d%0a%e2%80%a2+Health+Partners%0d%0a%e2%80%93+AG+Compliance+Audit+%e2%80%93+AG+Demand+That+Board+Appoint+Two+Individuals+of+AG%e2%80%99s+Selection+to+Board+(Including+Chair)+%e2%80%93+In+Litigation%0d%0a%0d%0a%e2%80%a2+Health+Midwest%0d%0a%e2%80%93+Challenge+By+Missouri+%26+Kansas+AGs+to+Proposed+Sale+of+Nonprofit+Health+System+Assets+to+HCA%0d%0a%e2%80%a2+Litigation+in+Both+States+%e2%80%a2+AGs+Seeking+Control+of+Sale+Proceeds%0d%0a5%0d%0a5%0d%0a%0d%0a%0cII.%0d%0a%0d%0aConsequences+(cont%e2%80%99d.)%0d%0a%0d%0a%e2%80%a2+CareFirst%0d%0a%e2%80%93+Md.+Insurance+Commissioner+Rejected+Proposed+Sale+of+Md.+Blue+Cross+Plan+to+Wellpoint+%e2%80%93+Challenged%3a%0d%0a%e2%80%a2+Executive+Compensation+%e2%80%a2+Due+Care+of+Board+%e2%80%a2+Independence+of+Outside+Financial+Consultants+(MEETH+Revisited)%0d%0a%0d%0a%e2%80%a2+United+Way+of+the+National+Capitol+Area%0d%0a%e2%80%93+%e2%80%9cSlater+Report%e2%80%9d+%e2%80%93+Begins+Application+of+Sarbanes-Oxley+to+Non+Profits%0d%0a6%0d%0a6%0d%0a%0d%0a%0cIII.+The+Message+Is%3a%0d%0a%e2%80%a2+Regulators+are+in+an+Aggressive+Mode%0d%0a%e2%80%93+State+Attorneys+General+See+Parallels+Between%0d%0a%e2%80%a2+For-Profit+Companies+Disclosure+Requirements+to+Shareholders+and+%e2%80%a2+Non-Profits+Disclosure+to+the+Public%0d%0a%0d%0a%e2%80%a2+There+Are+%e2%80%9cSpill-Over%e2%80%9d+Effects+of+Sarbanes-Oxley%0d%0a%e2%80%93+State+Attorneys+General+will+look+to%3a%0d%0a%e2%80%a2+%e2%80%a2+%e2%80%a2+%e2%80%a2+More+Proactive+Boards+Vigorous+Board+Oversight+in+Key+Areas+CEO%2fCFO+Certifications+of+Financial+Statements+Board+Responsibility+for+Conflicts+of+Interest%0d%0a%0d%0a7%0d%0a%0d%0a7%0d%0a%0d%0a%0cIII.+The+Message+Is%3a+(cont%e2%80%99d.)%0d%0a%e2%80%a2+Expect+Legislative+Proposals+to+Apply+Selected+Portions+of+Sarbanes-Oxley+to+Non-Profits%0d%0a%e2%80%a2+New+York+-+AG+2%0d%0a%e2%80%93+Mandatory+Executive+and+Audit+Committees+%e2%80%93+Responsibility+for+Appointment%2c+Compensation%2c+Oversight+of+CPA+Firm+%e2%80%93+CPAs+Report+Directly+to+Audit+Committee+%e2%80%93+Independence+of+Audit+Committee+Members+%e2%80%93+President%2fTreasurer+Certification+of+Financial+Reports+and+Internal+Controls+%e2%80%93+%e2%80%9cWhistle+Blower%e2%80%9d+Procedures%2fProtections%0d%0a8%0d%0a8%0d%0a%0d%0a%0cIII.+The+Message+Is%3a+(cont%e2%80%99d.)%0d%0a%e2%80%a2+Expect+Legislative+Proposals+to+Apply+Selected+Portions+of+Sarbones-Oxley+to+Non-Profits+(cont%e2%80%99d.)%0d%0a%e2%80%93+Incorporation+of+IRC+4958+%e2%80%9cSafe+Harbor%e2%80%9d+Standards+and+Voidability+of+Related+Party+Transactions+That+do+not+Meet+Standard+%e2%80%93+Executive+Compensation+Requires+Full+Board+Approval+%e2%80%93+Limitations+on+Officer%2fDirector+Indemnification%0d%0a%0d%0a9%0d%0a%0d%0a9%0d%0a%0d%0a%0cIV.%0d%0a%0d%0aSolution%3a+Stay+Ahead+of+the+Curve%0d%0a%0d%0a%e2%80%a2+Adopt+%e2%80%9cBest+Practices%e2%80%9d+to+Protect+Your+Corporation+and+Your+Board%0d%0a%0d%0a10%0d%0a%0d%0a10%0d%0a%0d%0a%0cIV.%0d%0a%0d%0aSolution+(cont%e2%80%99d.)%0d%0a%0d%0a%e2%80%a2+Steps+You+Can+Take+Consistent+With+SarbanesOxley+Provisions%0d%0a1.+Establish+an+Independent+Audit+Committee%0d%0a%e2%80%a2+Independent+Members+%e2%80%a2+%e2%80%9cFinancially+Literate%e2%80%9d+with+at+Least+One+Member+a+%e2%80%9cFinancial+Expert%e2%80%9d+%e2%80%a2+Oversight+of+Outside+Auditors+and+Internal+Audit+Staff+%e2%80%a2+%e2%80%9cWhistle+Blower%e2%80%9d+Invest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