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Large or small organizations must always comply with SOX provisions. Information provided by this Act assist in successful management and audit. Legislation of the Act came into existence and enforced in 2002 in a bid to made significant changes within the regulation of corporate governance and financial practice. Security policy for organizations is a crucial requirement for the Act. SOX have been applied within the profit and non profit organizations in various ways (Hippel & Hopt, 2006). Non-profit organizations are required to follow Sarbanes-Oxley compliance as an attempt to ensure fair reporting as well as financial management practices for stakeholder's interest. Application of this regulation guarantees whistle blower protection and proper record keeping as per the provisions advanced. Regulations of the Sarbanes Oxley within a non-profit organization involve risk management, legal considerations, organizational management, financial management, accountability as well as fair financial governance practices.

NPOs: Governance and organizational management

Provisions of the Act

SOX regulate the undertakings of the organizational boards so as to facilitate independence of the auditors. Explanation processes in election of competent members of the audit committee is facilitated by the Act provision as well. SOX's intervention is meant to ensure reporting procedures which are adequate are adhered to. Regulations and closing of most of the enterprises loopholes for non-profit organizations relating to whistle blower protection or document destruction is safeguarded under the Act (Jackson, 2006).

Competent and independent audit committee

Each committee member of the audit must be a member of the director's board and must be independent. Being independence means that the individual is not part of the management team. SOX also state that the member must not receive any compensation whether indirectly or directly from the firm for any service that the individual delivers or even offers to the audit committee. However, NPOs board services can be compensated. Financial experts within the NPO's must have specific qualifications to prove their competence such as accounting or auditing. As per the Act within NPOs, most committee members serve as volunteers and do not participate in voting (Diamond, 2005).

SOX Recommendations

Boards are entrusted with the responsibility of assessing all the potential benefits or costs of an audit. Non profit organizations (i.e. NPOs) are supposed to conduct audits yearly if their budgets go beyond 500000 dollars plus federal funds received. Outside audits particularly for medium to large organizations should have separate finance and audit committee (Hippel & Hopt, 2006). Members of these committees should not be compensated for their services. Conflicts of interest should never be entertained with the organization. Any auditing firm engaged should have the required skills or experience and their performance must be carefully reviewed.

Relevance to NPOs Boards

NPOs are required by SOX to that a change in auditor's team is instituted on yearly basis. Such practices ensure financial practices that are up to standard. Quality services can be provided under SOX's provisions in prevention of audit firms from availing non-auditing services as such practice would demonstrate conflict of interests between the audit firm and their client. Exceptional in offering any other services should be accorded to tax preparations but this must be approved in advance as well. Audit committees should disclose all critical policies or practices of accounting to the auditing firms to facilitate efficiency (Moeller, 2004).

Financial Management

Certified financial statements

Chief financial officers (i.e. CFO) and the chief executives (i.e. CEO) have to certify NPOs financial statements appropriateness. Fair presentation of the organization operations or financial condition should be conducted. Violations of the fair presentation must be intentional to result to liability. Non profit organizations benefit from this because timely and accurate organizations financial statements are presented (Jackson, 2006). Confidence to certify document integrity is thereby achieved. State of this nature would facilitate CEO's excellence in fundraising plus improvement on the knowledge of the field of interest for the organization or other skills. Convincing donors or funders will be simplified since the donors will be sure that their funds are properly managed. CEO's are responsible for ensuring the organization's resources experience proper stewardship.


Conflicts of interest or insider transactions

Generally SOX prohibits advance of loans to executives or directors of the non-profit organizations. Within non-profit organizations, serious penalties are advanced where excessive personal benefits or self dealing are involved. Incase any loan is advanced, boards approval must be acquired in advance, loan provision process documented and there should be a disclosure of the terms and the values of such loans (Ramos, 2004).

Legal Considerations


SOX requires non-profit organizations to fully disclose all internal control mechanisms for the past financial corrections statements or balance-sheet adjustments. Material changes within financial situations or operations of the organizations must be done on current and rapid basis. Disclosure will be essential for non-profit organizations because it provides the public officials, donors, media and clients, among others with the proper and accurate financial condition of the organization. Non-profit organizations should ensure accuracy completeness or timeliness of form 990 or 990-PF. That requirement is achieved through electronically filing the first date when availed to the organization (Diamond, 2005).

Whistle-Blower protection

SOX provide criminal penalties or whistle blowers with new protections for actions done retaliating against whistle blowers. SOX protect individuals who put their careers at risk by reporting suspicions of illegal activities within the organizations. The act provides for illegality incase of any punishment to whistle blowers is reported. Non-profit organizations have to begin by protecting themselves where irresponsible or careless accounting practices must be eliminated. Non-profit organizations benefit from internal audit since it reveals weak spots and initiates non-vulnerable processes towards abuse or fraud. Written policies enforced vigorously by the board or executive ensure issues of misconduct are not tolerated. On profit organizations are meant to develop mechanisms that encourage the staff to report any from of inappropriateness within the organizational management of finances. Employee's complaints must be seriously investigated to find ways of fixing the problem (Moeller, 2004).

Risk Management

Document destruction

SOX are responsible for addressing destruction of documents that are related to litigation. The Act considers it a crime to cover up, alter, destroy or falsify which would facilitate prevention of official proceedings. Such destructions must be justified, monitored or carefully administered. Non profit organizations must avail proper records concerning their operations. Current technology, electronic files or voice mails can make proper record keeping complicated and unreliable. Delete button of a computer can act as a permanent file removal method. For this reason, non-profit organizations must avail written documents retention plus a periodic destruction policy (Ramos, 2004). Apart from document retention, this also limits innocent or accidental destruction. Retention policy must also involve the guidelines in handling voicemails or electronic files. In cases of official investigation ongoing, the management of nonprofit organization must stop any from of document purging to prevent criminal obstruction.


With SOX having been in operation for a while now, NPOs reporting face has changed. Intensity of its corporate governance scrutiny has ensured nonprofit sector regulation. Non-profit organizations have been forced to undertake an analysis of its board practices plus its operation methods. SOX have assisted non- profit organizations to identify guidelines, best practices within the sector and standards for stakeholder's interest. Under the Acts provisions, Self and proactive regulatory behaviors have been enhanced and this has proven very resourceful for the non-profit organizations (Moeller, 2004).