Nonprofits, Sarbanes-Oxley, and the States
Enacted in response to corporate accounting and oversight scandals in
2001 and 2002, the American Competitiveness and Corporate Accountability
Act of 2002 became law on July 30, 2002. Known popularly as Sarbanes-
Oxley, the act introduced significant new governance standards, requiring
the boards of publicly traded companies to oversee closely financial
transactions and auditing procedures.
Sarbanes-Oxley affects nonprofits as well; the provisions of the act that
govern whistle-blower protection and document destruction apply to
charities. In addition, many state governments have passed or are
considering legislation that addresses nonprofits' accounting and
California's Nonprofit Integrity Act of 2004 (SB 1262) went into effect
on January 1, 2005. Under the act, all nonprofits with annual revenues of
at least $2 million must have an audit prepared by an "independent" CPA,
as defined by the federal government. The audit must be overseen by an
audit committee, whose members must not constitute more than half of a
nonprofit's finance committee. The nonprofit must also make the audit
available to the public and the attorney general on the same basis as its
IRS Form 990.
The Massachusetts legislature is slated to vote later this year on the
Act to Promote the Financial Integrity of Public Charities, a bill
similar to California's Nonprofit Integrity Act. Like many other states,
Massachusetts has recently changed audit thresholds and requirements for
nonprofits. HB 4234 became effective in October 2004; it requires
nonprofits with annual revenues of at least $500,000 to submit to the
Division of Public Charities a full audit performed by an independent
CPA. In addition, charities with revenues between $100,000 and $500,000
must submit a financial review conducted by an independent CPA.
New Hampshire's HB 1408, passed last year, requires every nonprofit with
an annual revenue of at least $500,000 to submit an audited financial
report along with its IRS Form 990. Under Maine LD 1691, also enacted in
2004, every nonprofit renewing its registration as a charitable
organization must submit an audited financial statement and IRS Form 990.
In June 2005, Connecticut passed SB 946/HB 6515 requiring charities to
submit a financial report annually to the Department of Consumer
Protection. A nonprofit whose gross revenues exceed $200,000 must also
file an audited financial statement. Under Kansas SB 121, passed in May
2005, all charities must submit a tax return to the secretary of state
before soliciting funds, and those whose contributions total $500,000 or
more must submit an audited financial statement.
In the wake of Sarbanes-Oxley, some state governments are holding
nonprofits to higher accounting standards. More states are addressing
these issues, and a federal act regulating nonprofits is possible. Links
to additional resources on Sarbanes-Oxley and the legislation mentioned
in this article are listed below.
For more information visit on link: Sarbanes Oxley lawyer and Sarbanes