I've recently had a flurry of questions raised about the application of the 2002 Sarbanes-Oxley Law (the Enron scandal reaction by the US Federal Government) so I did some research and here's what I've learned.
First, except for two provisions within the law, the law does not nor was it intended to regulate nonprofit governance. The two provisions: a whistleblower clause (a nonprofit can't retaliate when an employee in particular, goes to an official and says something illegal is going on) and a document destruction/cover-up clause. OTHER THAN THESE TWO CLAUSES, the Sarbanes-Oxley Law is applicable only to publicly traded companies.
With that said however, the Law contains lots of appropriate advice about how corporations, including nonprofits, should behave. This advice has been reviewed and published best in a joint effort by the Independent Sector and Board Source. You can retrieve a pdf copy here.
Some recommendations include:
1. Have an Independent Audit Committee that is not the Finance Committee -- someone not part of the management team and "independent" to hire, set the compensation and oversee the auditor. Having a member of the team who is a fianncial expert is essential. Note, this recommendation may be more difficult to apply for small nonprofits. Also, I think this body to be more of a Task Force that has a limited scope and time-line and is reappointed annually.
2. Think twice if not alot more times about providing loans to any director or executive. This of course is covered within the self-dealing rules covered by Intermediate sanctions laws as well as conflict of interest policies and the basic duty of care.
3. Re Whistleblowing -- put into place policies and procedures to enable employees to report any inappropriateness with the nonprofit's financial management. No retribution is allowed.
4. Re Document Destruction -- again, put into place policies and procedures regarding document retention and destruction.
A final thought: Sarbanes-Oxley, while generally not a law applied to nonprofits is at minimum a prescription for one element of good nonprofit governance. Nonprofit Boards and their execs do well to review and apply what BoardSource/Independent Sector has outlined.