Non-Profit SOX Is An Unnecessary Evil

Unless you've been living under a rock for the past year, you know that Congress is well on its way to enacting a kind of Sarbanes-Oxley law for the non-profit sector. Recent scandals involving several high-profile charities have triggered a reform movement that will not be satisfied until Congress passes new laws. The charity establishment (in the form of the Independent Sector, a coalition of the country's leading non-profits) saw the writing on the wall and quickly responded to the Senate Finance Committee's invitation to make recommendations. The result is a hefty report from our side containing many specific suggestions for new rules, guidelines, statutes, safe harbors and the like. The Independent Sector used a lot of paper, legal fees and staff time to achieve this.

Yet, there are a few voices amid the clamor that claim none of this is necessary. They make the simple point that all we need to get the non-profit sector back on track is better enforcement of existing laws. They have a point.

The IRS doesn't have to abandon its auditing function, nor its tweaking of the forms it requires non-profits to file. But it should actively encourage and then actually respond to public complaints. A complaint-driven approach is inherently broad and will catch abuses that the stodgy audit system misses. It will certainly keep charities on their toes more than the statistically low chance of an audit does now. It's true that complaints will tend to focus on the higher-profile or controversial non-profits and could result in arbitrary enforcement. But it's also true that audits and reporting requirements can have the same result. The IRS should use both approaches.

The momentum in Congress is to enact comprehensive non-profit legislation, and it might be that there's a need for it. But the contrarians have a few good ideas too. Less might be more.


Bruce D. Collins

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