Sarbanes-Oxley also includes provisions requiring the protection of whistleblowers and strict guidelines for document retention, and destruction. The IRS compliance guide issued in February 2007 states: "An effective charity will adopt a written policy establishing standards for document integrity, retention, and destruction." Any policy should include guidelines for handling electronic files, according to the IRS guide available at http://www.irs.gov/ pub/irs-pdf/p4221.pdf.
The fear of federal scrutiny has created a spike in the number of internal assessments by nonprofits. "Compliance reviews and legal audits by organizations that want to assess their potential exposure are up by at least a third over the past couple of years," with many seeking outside counsel instead of relying on board members for legal advice, the Law Journal reported in September.
Robert L. Thalhimer, senior vice president of Advancement at The Community Foundation of Richmond (VA), said more than 700 community foundations across the United States have "had a head start" in front of the evolving issue.
The IRS' guidance has been heeded by those large nonprofits that have brought in outside directors and increased their group?s financial transparency.
From the smallest to the largest foundation, he said, "There's much more awareness that a mistake by one can tarnish many."
Thalhimer said his group, one of Virginia's largest grant-makers with $633 million in assets, has been a national leader on transparency issues, and was one of the first community foundations to receive peer-reviewed certification. But it takes time and money, he noted.
"It costs more in terms of personnel time that gets devoted to governance," Thalhimer said. "These things just don't create themselves."
Gearing up on governance issues is bound to be harder for smaller groups, another expert said.
"Many of the boards get in trouble because they can't find independent directors," said Ruth Epps, an accounting professor in the Virginia Commonwealth University School of Business.
Yet Epps, who serves as a consultant for nonprofits, cautioned that it is an issue that likely will intensify. "I just think we as a society are demanding more accountability for our money," she said. "In my mind, Americans are more patriotic and want to give back and build communities. We want to make sure this hard-earned money we worked for goes to what we intended."
Heinrich said a good reference point for guidance is the Independent Sector, the Washington-based nonpartisan coalition for nonprofits. Another source of information is the Association of Governing Boards of Universities and Colleges, which represents more than 1,200 colleges and universities plus public college and university foundation boards. The Panel on the Nonprofit Sector?comprising 24 leaders from a wide range of the country's public charities and private foundations-has released a guide to help nonprofits improve accountability and ethical practices. It is available at http://www.nonprofitpanel.org.