AMC Institute News Releases

The Sarbanes-Oxley Act: Accounting Reform One Year Later - Potential Cascading Effect for Private Companies, Nonprofits, Associations

ATLANTA (August 1, 2003) One year ago, President George Bush signed into law The American Corporate Accountability Act of 2002, commonly known as Sarbanes-Oxley – according to the White House the most far-reaching reform of American business practices affecting publicly traded companies since Franklin D. Roosevelt’s time in office. Since then, the Securities and Exchange Commission (SEC) has required the top 947 CEOs to personally certify financial report accuracy and has filed over 150 actions against violators, among other accomplishments. Accounting reform legislation inspired by the Act and proposed across the country might soon affect private companies, charities and nonprofit organizations and associations.

Within the last year, 14 states have introduced Sarbanes-Oxley related legislation – often to strengthen penalties, and sometimes to add private companies and nonprofit organizations to the mix, according to the American Institute of Certified Public Accountants (AICPA). (See >http://www.aicpa.org/statelegis/index.asp). This July, New York Attorney General Eliot Spitzer adopted new accounting reform regulations affecting charities operating in New York. Ranging from additional disclosure statements and mandatory annual report filings to compliance restrictions and additional Attorney General approval, the new regulations are designed to ensure financial accountability by boards of charitable groups and are similar in intent to the legislation originally authored by Senator Paul Sarbanes (D-Md.) and House Representative Michael Oxley (R-Ohio). (For additional provisions and further information, visit >www.oag.state.ny.us/charities/charities.html.)

With regard to nonprofits, few regulators draw distinctions between 501-(C)3 and 501-(C)6 organizations, or between charitable foundations and membership organizations. Hugh Webster, a partner with Webster, Chamberlain & Bean, a law firm based in Washington D.C. specializing in association law notes, “an isolated incident, usually a scandal involving a charitable foundation, can have a cumulative impact on all nonprofits. Over the years, the courts, for instance, have slowly shown a greater willingness to hold nonprofit boards accountable.”

As state and federal regulations affecting exempt associations become more and more complex, nonprofit association boards are increasingly giving consideration to Association Management Companies (AMCs). AMCs are for-profit companies staffed with skilled professionals who provide management and administrative support to volunteer-based membership organizations, especially nonprofit associations. When an association hires an AMC, they have another layer of internal and external control as a third layer of accountability. AMCs are duty bound in their capacities as stewards of their association clients to ensure compliance with applicable laws and regulations. AMCs employ staff professionals with expertise and resources that many associations cannot provide on their own – and can support and assist volunteers specifically with regard to their fiduciary responsibilities. This is precisely where an AMC can help in its role as partner to an association and its board,” says Bill MacMillan, CAE, past chair of the American Society of Association Executives (ASAE) AMC Section Council and CEO of Association Headquarters, an AMC based in Mt. Laurel, New Jersey.

How can associations prepare for possible mandated requirements? “Be sure those on your board are qualified to serve and well-versed in their roles as fiduciaries,” explains Sammi Soutar, CAE, board member of the AMCinstitute, president and founder of Able Management Solutions, Inc., a Columbus, OH-based AMC. “One of the best things association leaders can do now is to conduct an operational audit or, at minimum, review policies and practices, such as accounting and recordkeeping, to ensure compliance with current law. ”

About the July 2003 NY Attorney General Regulations and future legislation

The New York regulations include numerous provisions such as the following:

Charitable groups with gross revenues in excess of $250,000 are required to file an accountant’s audit report. Should a charity fail to file its annual report, the organization will lose its registration with the NY Attorney General's Charities Bureau. Should the charity want to file a combined annual financial report (by a parent organization), prior written approval of the Attorney General must be secured. Charities cannot submit financial reports without first registering with the Charities Bureau. Mandatory with each new charity registration is a disclosure statement providing information on any past unlawful practices of a charity’s board and staff. For additional provisions and further information, visit www.oag.state.ny.us/charities/charities.html.

A New York Senate bill, S4836-A, currently in committee, would amend the state’s not-for-profit corporation law relating to protections against financial fraud and abuse.

About AMCs and how they can help associations with Sarbanes-Oxley readiness

As for-profit businesses that provide professional services to numerous associations and societies, AMCs manage association finances, membership development, marketing and public relations, information technology, new media and other services. According to the AMCinstitute, U.S. associations and nonprofits contribute approximately 10 percent to the Gross Domestic Product. And nine out of 10 adult Americans now belong to at least one association. AMCs in the United States now manage budgets exceeding $2 billion collectively. Budgets for associations utilizing AMC services range from thousands to millions of dollars annually. For more information, including a Sarbanes-Oxley Refresher for Nonprofits, click here.

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