Sarbanes-Oxley for Nonprofits: A Guide to Building Competitive Advantage

256 Pages·2005·1.9 MB·English

by  Peggy M. Jackson

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Sarbanes-Oxley for Nonprofits
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Sarbanes-
Oxley for
Nonprofits
A Guide to Gaining
Competitive Advantage
Peggy M. Jackson, dpa, cpcu
Toni E. Fogarty, ph.d.,mph
John Wiley &Sons, Inc.
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This book is printed on acid-free paper.
Copyright © 2005 by John Wiley & Sons, Inc., Hoboken, NJ. All rights reserved.
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
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Library of Congress Cataloging-in-Publication Data:
Jackson, Peggy M.
Sarbanes-Oxley for nonprofits : a guide to gaining competitive
advantage / Peggy M. Jackson and Toni E. Fogarty.
p. cm.
Includes index.
ISBN 0-471-69788-5 (cloth)
1. Nonprofit organizations—United States—Finance—Management. 2.
United States. Sarbanes-Oxley Act of 2002. 3. Nonprofit organizations—
Accounting--Law and legislation. 4. Nonprofit organizations—Auditing—
Law and legislation. 5. Nonprofit organizations—United States—
Management. I. Title: Sarbanes-Oxley for non-profits. II. Fogarty, Toni E.
III. Title.
HG4027.65.J33 2005
657'.98—dc22
2004029119
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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In loving memory
Bernice Stinemates Barnhardt
Carlisle Stinemates
The Rev. Chandler C. Jackson
PMJ
In loving memory
Molly Davenport
Nokal Kitchens
Hoss and Weasel
TEF
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Contents
acknowledgments xiii
about the authors xv
preface xvii
chapter 1 Overview of the Legislation and Its Implications
for Nonprofits 1
What Is the Sarbanes-Oxley Legislation About? 1
Relevance of SOX to Nonprofits 12
Current Legislative Environment for Nonprofits 13
Conclusion 26
Endnotes 26
chapter 2 Safeguarding Your Nonprofit’s Financial Resources
and Assets: Establishing Auditor Independence
and Audit Committee Competence 27
SOX Titles II and III 28
The Value of Accurate FinancialStatements 29
The Importance of a Good Audit 30
The Board’s Responsibility Regarding the Financial
Statements 32
Conclusion 38
chapter 3 Reading and Interpreting Financial Statements 39
Balance Sheet 42
Statement of Operations 46
Statement of Changes in NetAssets 49
Statement of Cash Flows 50
Financial Statement Analysis 52
Conclusion 65
vii
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viii contents
chapter 4 Form 990: Unnecessary Paperwork or a Useful Tool? 67
What Are Form 990 and Form 990-EZ? 67
Why Is Form 990 Important? 68
Management’s Role in Improving Form 990:
Creating a Good Internal Control System 69
The Board’s Role in Form 990 72
Conclusion 74
chapter 5 SOX Sections VIII and XI: Document Retention and
Whistleblower Protection Obligations 75
Whistleblower Protection 76
Creating a Confidential ReportingSystem 77
Document Retention, Archiving, and Retrieval 79
First Steps: Beginning the Process 79
Conclusion 84
chapter 6 Raising the Bar of Accountability: SOX Best Practices
and the Board 85
Legislative Environment: Best Practices and Governance 86
New Expectations for Board Oversight and Governance 89
Higher Expectations for Board Membership and
Deliberations 90
SOX and the Board: Higher Performance and
Greater Accountability 96
Championing SOX Best Practices: The Board’s
Governance Role 98
Conclusion 102
chapter 7 SOX Best Practices and Organizational Culture:
Changing the Environment 103
The Nonprofit’s Organizational Culture and the
Adaptation of SOX Best Practices 103
Introducing Change 110
Nonprofit Board Culture 112
Strategies for Introducing Change in the Board Culture 120
Conclusion 121
Endnote 121
chapter 8 A Platinum Operating Standard Starts
with Good Bones 123
SOX Best Practices: Moving to a Platinum
Operating Standard 123
What Are Platinum OperatingStandards? 125
Review of Internal Controls 126