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Internal Control in Nonprofit Organizations

Still nonprofit organizations are dependent on the public's trust which has to be gained by being financially transparent and accountable for all decisions and procedures being made. Therefore, it is very important to develop sustainable internal controls in order to ensure smooth corporate procedures and processes (Petrovits et al., 2011; Stone & Ostrower, 2007). The government introduces a lot of regulations in order to improve organizations' accountability and transparency. For-profit organizations have to obey numerous provisions which were adopted to prevent financial scandals and improve the stakeholders' confidence and status of information. But there are not a lot of regulations for nonprofit organizations even though it is fundamental for them to be transparent and accountable for every decision. The Sarbanes- Oxley Act was intentionally adopted for publicly traded for- profit organizations in order to increase responsibilities, improve transparency and accountability to give the stakeholders a more diaphanous view on the organizations they are investing in. Even though the Sarbanes- Oxley Act was just intended to be adopted by for- profit organizations the provisions within this act concern a lot of aspects of internal control that matter for nonprofit organizations as well.
             This review discusses the Sarbanes- Oxley act and its provisions that are the most important for nonprofit organizations. Several researchers surveyed numerous nonprofits in order to evaluate to which extend certain provisions are implemented and actually beneficial. Many nonprofit firms reviewed their current practices after the adoption of Sarbanes- Oxley in 2002 in order to improve internal control processes and increase liability in the donor's view. Greater financial transparency and accountability increase the donor's confidence in supporting nonprofits; therefore, a close look on the adoption of Sarbanes- Oxley provisions in the nonprofit sector is necessary in order to understand internal control aspects which are important to raise money for their programs and also to see similarities to control problems of for- profit organizations (Mead, 2008).


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