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| On the Board |
Sarbanes-Oxymoron
Matthew Schuerman
07/01/2004
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The 990s list salaries of an organization’s top officers, fees
paid to directors, the names of the top five outside contractors and amounts
paid. In other words, they contain most of the information the proposed state
Sarbanes-Oxleys seek to unearth. For example, the fiscal 2000 tax form for Hale
House Center showed that the scandal-tainted Harlem home for children of drug
addicts, with a budget of $5 million a year, had spent three times more on
consultants than on food and clothing, $474,000 on postage unrelated to
fund-raising and carried a surplus equal to two years of operating expenses.
Such mismanagement went undetected for years, until April 2001, when the New
York Daily News exposed the charity—a favorite of Donald Trump, Patrick Ewing
and Rosie O’Donnell—as a sham.
Brad Maione, a spokesman for Spitzer, refused
to discuss Hale House or how the Sarbanes-Oxley proposal would have made
detection any quicker. “We’d like to focus on the future,” he wrote in an email
to Worth. That future, however, does not include any request for a larger
enforcement budget. Spitzer’s office currently reviews randomly selected
financial reports from 2,000 nonprofits a year. That means it will take 24 years
for his staff to get through all of the state’s nonprofit organizations, by
which time there will be many more.
Spitzer hopes that the very act of
certifying financial statements, along with using an audit committee, will
prompt charities to police themselves. Unfortunately, nonprofits would not have
to hire independent auditors; one could also amend its bylaws so that its entire
board acted as the audit committee. This sort of equivocation is what angers
Sauer, the director of the upstate charity association. He holds that modeling
nonprofit law on Sarbanes-Oxley misses the point. Spitzer’s proposal, he
maintains, “does not go into situations in which board members are self-dealing
and approving contracts where there is a conflict of interest.” He would like to
see a law that would increase the minimum size of boards from three to seven
members, ban trustee fees and forbid organizations from doing business with
companies that their board members run—or, at the very least, add safeguards,
such as prohibiting trustees from lobbying colleagues on contracts in which they
have an interest.
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