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In the wake of the Enron and Worldcom scandals, the federal government responded with arguably the most significant securities law in decades. This response, the Public Company Accounting Reform and Investor Protection Act of 2002, is popularly known as the Sarbanes-Oxley Act (SOX). Although geared towards financial reporting, SOX has been used in human service organizations practices. Most notably, these applications maintain the trustworthiness of these organizations and conducts periodical audits to ensure efficacy and efficiency. There are many sources for background information and the discussion of issues related to SOX. Human service organizations must comply with all the legal issues and statutes to avoid sanctions by the Securities and Exchange Commission (SEC). These sanctions can include monetary fines and criminal actions. The arguments for providing this legislation are simple; the federal government must monitor companies to ensure Enron was an exception, not the norm. However, the criticisms are equally as compelling: increases in regulation, professional conflicts, a general lack of clarity, increasing compliance costs and the concept of corporate federalism all play roles in the arguments against such legislation.
The implications of SOX can be found through valuable resources, especially the International Law Review. This publication discusses different legal cases throughout the world in relation to SOX and how the results have affected SOX and the parties involved. The SEC provides periodic reports on compliancy issues. This commission also details the courses of actions taken against those companies which fail to meet requirements. Additionally, the American Institute of Certified Public Accountants provides educational material on SOX, as well as discussions on the future implications of such regulation. Moreover, there are several other academic journals which monitor the affects of SOX and discuss current issues and concerns.
Furthermore, these resources contend the purpose of SOX. The immediate argument for such legislation it that SOX imposes a system of checks and balances on companies seeking to defraud or abuse its employees or customers. (Mead, 2008). Although human service organizations would have a tough time to duplicate the disastrous scandals of Enron, Worldcom and many others; these organizations do have the ability to play on customer’s emotions. SOX, also, seeks to keep such organizations from abusing consumer’s rights, such as allowing organizations to sell consumer information to other companies. (Dailey & Brookmire, 2005). The purpose of auditing such organizations follows the same line or reasoning. Human service organizations should maintain accurate open records to its employees and consumers, so everyone involved can make the most educated and fair decision. Moreover, SOX is another way to develop and strengthen trust between human service organizations and consumers. Since this trust often involves private consumer information and monetary issues; the organizations’ trustworthiness should not be brought into question.
In addition to the overall purpose and influence of this law, human service organizations must account for their daily activities. Since SOX allows the SEC to audit such organizations with seemingly free reign, human service organizations cannot afford even the minor miscalculation or incidental misrepresentation. As a result, such organizations must demand even more from employees in order to meet the statutes’ requirements. Demanding the employees not only do their job, but within the boundaries of the SOX mandates adds stress to an already volatile situation. Companies have sought to develop individual auditing tools for their businesses and human service organizations have tried to create similar measures. (Powell, 2008). Aside from internal stress and overwhelming dislike of the foregone bureaucracy, human service organizations must also contend with consumer attitudes towards such procedures.
Besides daily issues within human service organizations, larger issues loom for human service organizations. Although Enron and Worldcom provided the logic for SOX, there has certainly been a far reaching believe that SOX does more damage than good. First, SOX has brought about subsequent regulations and movements in the way of audits and other accounting issues. SOX, also, gives rise to professional conflicts within the same organizations. Mead (2008) explains, “Section 307 requires counsel to report material state and federal violations, as well as breaches of fiduciary duty, with attendant liability for failure to comply. Traditionally, the highest court of each individual state would set such rules. SOX created federally legislated rules of conduct.” Third, a general lack of clarity of SOX has become an expressed concern for small organizations. (Grossman, 2005). The organizations, some of which provide human services, often are unable to afford the compliance costs and can withdraw from the market. Lastly, there is an overwhelming concern of the loss of corporate autonomy and the rise of federalization. The idea of federalization goes well beyond the human service organizations’ issues and accountability concerns, in general. The federal government has sought to gain control of these organizations though mandates, including SOX.
Moreover, the implications for clients and organizations for non compliance are staggering. The federal government seeks to impose harsh sanctions, including monetary fines and possible criminal actions against those companies which do not comply. Human service organizations provide services to people who have very little, if any, means to provide for themselves. Auditing an industry seeking to help people in need is atrocious. Even if they do not directly sanction a specific organization, the federal government sets standards for these organizations to get lost in compliancy costs and legal battles which make most organizations fall under the pressure. The federal government also allows the SEC to fine, mostly outlandish amount, organizations which defy SOX. (Dailey & Brookmire, 2005). Through these various ways, the federal government has sought to stamp out any further issues on the scale of Enron. However, the federal government’s tightened restrictions have created more harm than good.
Conversely, the best course of action is a hybrid solution. The federal government could establish oversight committees to ensure compliance issues, while allowing the states to govern sanctions and auditing systems. Therefore, federalism does not have to be a concern for those smaller organizations as they can seek assistance form the states concerning compliancy issues. Also, human service organizations could seek to establish individual compliancy offices to oversee concerns of the government and yet keep from having to spend outrageous cost to federal agencies in charge of this so called compliance. In this manner, both needs of the federal government and human service organizations can be met without unreasonable sacrifices on either side.
The Sarbanes-Oxley Act of 2002 sought to federalize the securities issue found in the aftermath of Enron and Worldcom. Adversely, small organizations have been affected by this legislature. Although major issues were answered with the SOX mandates, even more were created with many other issues and concerns affecting smaller institutions, to include human service organizations. While the rationale for the law is sound, the daily operations of such organizations were thrown for a complete loop. Monetary sanctions and criminal actions have become the federal government’s answer for those maintaining non compliance. While this may be the present course of action, human services organizations must seek to change this law, quickly, into a more hybrid solution to serve both parties involved.
References
Dailey, P. R., & Brookmire, D. A. (2005). Back to Our Future: Challeniging New Complaince and Leadership Accountabilities for Human Resources, Courtesy of Sarbanes-Oxley. Human Resource Planning, 28(3), 38-44.
Grossman, R. (2005). Demystifying Section 404. HRMagazine, 50(10), 46-53.
Mead, J. (2008). Confidence in the Non Profit Sector Through Sarbanes-Oxley Style Reforms. Michigan Law Review, 106(5), 881-900.
Powell, K. (2008). More Than the Math. HRMagazine, 53(2), 87-90.
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