One in Five Charity Boards Changed Policies in Past Year

A federal law intended to improve corporate governance and accountability has had relatively little impact on nonprofit organizations, according to a new survey.

Just one in five of the more than 300 nonprofit officials surveyed said their organizations had made any changes as a result of the Sarbanes-Oxley Act, which Congress passed last year in the wake of scandals involving several major corporations. The law is intended to ensure that the boards of publicly traded companies have the financial expertise and independence needed to oversee the managers’ performance. Although most of the act’s provisions apply only to such companies, many experts advise charities to consider adopting similar measures.

The survey, conducted by Grant Thornton International, an accounting and business advisory group, showed that while 57 percent of nonprofit executives were at least somewhat familiar with the Sarbanes-Oxley Act, only 38 percent said their organizations had discussed its implications for their activities, and just 20 percent said their groups had changed any policies in light of it.

Of the organizations that did make changes, 24 percent said they had instituted conflict-of-interest policies; 20 percent developed procedures for internal financial controls; 17 percent wrote codes of ethics; 16 percent created audit committees; and 11 percent drafted recommended standards for board members.

Size Mattered

Some responses varied by organizational size. Larger organizations — those with annual revenue of at least $10-million — were more likely to have discussed the law and more likely to have made certain changes as a result, such as creating a separate audit committee. But smaller groups were more likely to have adopted or changed their policies on conflict of interest. Two-thirds of the groups surveyed had annual revenues of less than $10-million.

Even before the law was passed, many nonprofit groups had adopted some of the measures it requires of companies. More than three-quarters said they had audit committees, for example, and a similar number said they had policies on which records to retain and for how long.

The 2003 “National Board Governance Survey for Not-for-Profit Organizations” is available free online at http://www.grantthornton.com/nfpsoxsurvey, or by sending an e-mail to nfp@gt.com.