Unintended? The Effects of Adoption of the Sarbanes-Oxley Act by Nonprofit Organizations
This study investigates the benefits and costs to nonprofit organizations emanating from the adoption of the Sarbanes-Oxley Act (2002). The Act was intended to stem financial malfeasance in the for-profit sector, nevertheless the study finds that about half the surveyed nonprofits adopted provisions of the Act and experienced effects in proportion to the level of adoption. About one in four of the nonprofits attributed benefits of better financial controls (27.3%) and reduced risk of accounting fraud (24.3%) to the adoption of the Sarbanes-Oxley Act. With regard to the costs of adoption, more than one-third of the nonprofit organizations reported increased fees for external audit (36.5%), and about 15 percent cited “reallocation of resources from program to administrative expenses” (14.8%). This research discusses the unintended positive and negative effects of public policy on nonprofit organizations.