Adoption of Sarbanes-Oxley Measures by Nonprofit Organizations: An Empirical Study

SYNOPSIS: This paper reports the results of a survey of 215 nonprofit organizations to determine the degree to which these organizations have voluntarily adopted provisions of the Sarbanes-Oxley Act of 2002 (SOX). The authors believe that this research is timely and important as several states are considering implementing regulation that would have implications for stricter accountability measures for nonprofit organizations. Results indicate that many of the nonprofits in this survey have either already adopted governance measures similar to those prescribed by SOX or are in the process of doing so. The regression results indicate that size of budget, size of the board of directors, and proportion of independent members on the board are significantly related to the presence of an audit committee. Organizations engaging external or internal auditors are more likely to have a code of conduct and have periodic assessments of internal controls. The presence of an internal audit function is also significantly related to management certification of financial reports. The regression analysis on a composite SOX measure (which was calculated by summing the responses to questions on adoption of an audit committee, code of conduct, whistleblower protection, management certification of financial reports, and periodic assessments of internal controls) indicates that the presence of an external and/or an internal audit is significantly related to the adoption of such SOX measures.