You may have already heard that the Internal Revenue Service (IRS) has proposed a substantial revision of the Form 990 that most nonprofit colleges and universities are required to file annually in order to disclose operational and financial information to both the IRS and these institutions’ stakeholders. The expansion and breadth of the information requested in the proposed Form 990 has caused organizations like Guidestar, the Association of Governing Boards (AGB), and Independent Sector (IS) to object. These organizations have raised concerns about over-regulation and frustrations regarding whether the wrong questions are being asked, or the right questions are being asked in the wrong way.
These concerns are well founded. If the proposed revised Form 990 is adopted, the IRS will have gone well beyond its original charge. It will instead be dictating indirectly operational practices that it has no authority to dictate. There are many examples of this over-reaching, but we find the following list of “yes” or “no” questions particularly interesting:
- Do you have a written conflict of interest policy?
- Do you have a written whistleblower policy?
- Do you have a written document retention and destruction policy?
- Do you have written policies and procedures governing local chapters, branches or affiliates if applicable?
- Does an independent accountant compile/review, and/or audit statements and if so do you have an audit committee?
- Does the board or a board committee review the form 990?
- Are the conflict of interest policy and financial statements made available to the public?
We expect that most of our clients easily will answer “yes” to almost all of these questions. And answering “yes” suggests an effort to employ good governance practices. What we find distressing is that most of these questions are among the dictates of Sarbanes-Oxley (SOX), a federal law that regulates and provides for transparency in the governance of publicly traded companies. But SOX does not apply to most colleges and universities. By requiring these institutions to answer the questions, the IRS is indirectly imposing the SOX dictates on them. It has no statutory authority to do so.
You have most likely heard more than you care to about SOX and its predicted impact on higher education governance. The law was passed by Congress in 2002 in response to the Enron case and similar debacles . For instance, SOX requires that a publicly traded corporation have an independent audit committee and that the independent auditors be rotated on a regular basis. Having an independent audit committee is a solid and useful board practice, and when we assist with policy manual development, we typically commend such a practice to our higher education clients. Similarly, SOX requires that all organizations adopt both a whistleblower and a document retention and destruction policy. Most institutions of higher education (both public and private) have adopted the SOX measures that apply to them and have voluntarily adopted some other SOX measures to promote enhanced accountability in higher education governance. Accountability and sound governance are very good things. But, when by the nature of the questions posed, the IRS strong-arms organizations into adopting certain policies and procedures, we think it is important to ask some questions of the questioner. Most notably, “Who gave you authority to implement SOX in higher education?”
What’s your opinion?
Originally posted December 12, 2007