INTRODUCTION - Big Opportunity for Non-Profits: Making the Case for Voluntary Self-Audits for Regulatory Compliance

Increasing scrutiny by the IRS among large non-profit organizations provides smaller non-profits with an opportunity to proactively model successful Governance, Ethics, and Accountability initiatives on a voluntary basis.

This blog post -- an Introduction -- will set the stage for a series of related blog posts in the coming days and weeks.

A bit of background will be helpful:

• Concerned about the lack of reporting and transparency among non-profits, the United States Senate Finance Committee began to look at revisions to non-profit reporting and regulation a number of years ago. The IRS Form 990 had not been revised in decades.

• Note that this review is relatively coincident with the enaction of the Sarbanes-Oxley Act on July 30, 2002. Commonly referred to as 'SOX', this legislation followed the corporate scandals involving Enron and others.

• The Finance Staff Discussion Draft was released on June 21, 2004. The Committee heard testimony from a number of non-profits prior to the Draft and again after its release.

• The Committee issued a press released on June 14, 2007 announcing the intention of the IRS to amend its Form 990. The amended Form 990 is scheduled to take effect in 2009 for fiscal years ending in 2008.

• On May 29, 2007, the Committee Chair and its Ranking Member co-signed a letter to the Secretary of the Treasury Department requesting that particular attention be paid to the operational complexities of non-profit hospitals and universities and the critical need of greater reporting and transparency among non-profits.

• That same letter outlined seven specific areas of concern: (1) Executive Pay; (2) Endowments; (3) Related Organizations; (4) Joint Ventures; (5) Governance; (6) Dollars Raised vs. Dollars for Charity; and (7) Hospitals.

The question that must be answered is clear: can the non-profits, particularly the small to medium ones, adopt self-audits and regulatory oversight before (and if) Congress decides to include non-profits in the SOX regulations?

Maybe the better question is: why would the small to medium non-profit NOT be proactive in its attempt to avoid costly regulatory oversight?

Since the enactment of SOX in 2002 for ALL publicly traded companies (large and small), much concern has been expressed by the small for-profit firms about the costs of compliance with SOX while, arguably, the large companies have been able to absorb the additional compliance costs more easily.

I would suggest that this dilemma can and should be avoided by the non-profit sector; excepting, however, that it seems clear that the hospitals and universities are so large and complex that they will not likely be off the radar screen in the near future.

I will continue the discussion on this issue in the days to come. In the meantime, please feel free to participate. Let us know how you feel. The purpose of our Center is to give the Non-Profit Sector a competitive advantage, so your thoughtful feedback is invited.