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| On the Board |
Sarbanes-Oxymoron
Matthew Schuerman
07/01/2004
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Eliot Spitzer turned his attention from Wall Street to a less high-profile
adversary last year: nonprofit organizations. Throughout the summer and early
fall, the New York state attorney general and his staff explained at accountant
meetings and nonprofit conferences a legislative proposal that would require
charities and private foundations to form audit committees and certify the
veracity of their financial statements. The reception was less than warm.
In
the original version of Spitzer’s proposal, even officers of organizations
pulling in a mere $250,000 a year in grants and other revenues would have had to
attest that their internal financial controls were sufficient, a requirement
that some insiders said would cost a nonprofit $10,000 to $15,000 to verify.
“Organizations with $250,000 in revenue at best have a part-time bookkeeper,
maybe a part-time treasurer,” says Doug Sauer, executive director of the Council
of Community Services of New York State, which represents small and midsize
upstate charities. “Maybe they have an executive director and maybe they are
paying him $30,000. This is a small, grassroots business. They don’t have the
capacity to do those sorts of things.”
Spitzer’s initiative is one of 12
bills pending in state legislatures around the country that bear the nickname
“state Sarbanes-Oxleys.” They are inspired by the 2002 federal law that requires
publicly traded corporations to establish independent audit committees and
certify the veracity of their financial reports. Nonprofit leaders agree that
charities need to be more accountable about their financial activities, but many
would rather see voluntary adoption of these provisions, rather than a legal
mandate. Stuck in the middle are donors, from those who run foundations and must
monitor their grant recipients in order to keep their own good reputations
intact, to those who are losing trust in charities themselves.
Charitable Muscle
One year after Spitzer began his efforts, the reformers
have made precious little headway. Nonprofits, it turns out, are a surprisingly
powerful lobbying force. They have persuaded the attorneys general in states
where proposals are the most onerous—New York, California and Massachusetts—to
back off. Even the calls for voluntary compliance have attracted very few
takers.
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