Not Just Enron: What You Need to Know about Sarbanes-Oxley

September 1, 2008

By Julia M. Johnson

Also known as the American Competitiveness and Corporate Accountability Act of 2002, the Sarbanes-Oxley Act came into being following the much-publicized accounting scandals that rocked companies such as Enron and WorldCom in the past decade. The Sarbanes-Oxley Act’s primary goal is to scrutinize the financial activity of public corporations, but it contains guidelines that are just as relevant for meeting planners and small companies. Mainly, the act tightens the standards of conduct and financial transparency for public-company executives, board officers and auditors.

But it also contains lessons for privately held companies and even nonprofits, says attorney Barbara Dunn, a partner with Howe & Hutton Ltd. in Ballwin, Mo.

There are two provisions in the act that govern public and private corporations alike, as well as nonprofit organizations, according to Dunn.  They are:

1) The protection of whistle-blowers who shed light on possible unethical activities at a company, and

2) The prosecution of those who try to falsify, alter or destroy company documents to prevent their use in an official investigation.

Under Sarbanes-Oxley, it is illegal to attempt retaliation against whistle-blowers who bring suspected illegal activity to light, Dunn says. Doing so can result in significant criminal penalty fines and stiff prison terms. “It used to be that if you fired a whistle-blower, you could be required to pay civil penalties, or money damages,” Dunn says. “Sarbanes-Oxley takes it to the level of criminal penalties.”

And individuals who try to change, obscure, hide, destroy or otherwise falsify documents in order to hinder an official investigation into company wrongdoing also face severe criminal penalties under the law, according to Dunn.

That’s why it should be top of mind for companies of all sizes, including meeting and event planning organizations, to adopt and follow strict conduct-reporting and document retention/destruction policies, Dunn says.

First, companies and organizations must create an atmosphere where employees can feel comfortable reporting suspicious activity, according to Dunn. “You might designate an ombudsman at your company, for example – someone whose job is to take grievances,” she says. “Some larger companies may even set up a confidential phone tip line that employees can call. You should have a company policy statement governing this, and follow it strictly.”

Next, organizations should make sure they have a detailed document storage and disposal policy in effect. “That can include e-mails, contracts, budgets, you name it, whether it’s paper or electronic,” Dunn says. “For example, establish a policy that says, ‘We will keep hotel contracts for X number of years, and budgets and payroll records for Y number of years.’ The goal is to be able to show later on that you had a policy in place, and that you followed it, whatever it is.

“Say you have a five-year contract retention policy, and you purge a set of them after five years, but later someone sues you in a case where those records might be pertinent,” she says. “You’ve destroyed the records, but you did it in keeping with the policy you had stated beforehand, so you won’t be punished for that – as opposed to a situation where you had no stated policy to begin with.” If most of your records are electronic, Dunn advises, work closely with your IT staff to set up a comprehensive retention and destruction policy.

Attorney Jim Goldberg, a partner with Goldberg & Associates in Washington D.C., says Sarbanes-Oxley should also spur discussion about the ramifications of accepting gifts from suppliers and other business partners.

“A typical corporate ethics policy will say that employees of the company can’t accept things of value from people they do business with,” Goldberg says. “That’s fine if you’re in the business of buying supplies; a buyer shouldn’t be getting a kickback from a seller.”

Where the line gets fuzzy is when a company’s meeting planning department sends someone out for a hotel site inspection, and that person ends up getting a comped room from the hotel, Goldberg says. “Technically, that would go against many companies’ ethics policies because that individual is personally receiving something of value.”

According to Goldberg, many companies follow the conventional wisdom that it’s okay to accept gifts if they go to the entire company and not specifically to an individual. “But again, that leaves a fuzzy area,” he says. “If you’re the meeting planner and you go on-site, and the venue gives you a fruit basket with cheese and crackers, you are technically not supposed to take that according to many company policies – whether you’re keeping it yourself or sharing it with the office.

“There is a lot of this kind of thing that goes on with planners; there’s nothing seriously wrong with it, but it just doesn’t fit in with many corporate ethics policies in the wake of Sarbanes-Oxley,” he says. In these cases, it’s best to err on the side of caution, he advises.

It’s also wise for meeting planners to pay special attention to financial transparency in the wake of Sarbanes-Oxley, according to Goldberg. “For example, if a corporation hires an independent planner for an event, and the planner is supposed to get a set fee for putting it together, should the planner also be taking a commission or other consideration from various subcontractors engaged in the transaction? What would the client say if they knew the planner was getting a 10 percent payment from the decorating company in addition to his or her regular fee?”

Dunn says it’s equally important to look at how responsibly your organization is spending money and promoting itself in the wake of Sarbanes-Oxley. “I tell planners to make sure the content of their Web sites, brochures, trips and meetings emphasizes the goals of the company,” she says. “Everything should be content-driven and reflect the purpose of your business. For example, spending money on a fun employee junket with no real substance or educational value may be a problem. Is it a legal issue? Maybe not, but it may still breach the benchmark being set for financial accountability.”

Toward that same goal of fiscal responsibility, it’s important to make sure you keep appropriate detail on expenses, budgets, account bills with hotels and venues, and related matters. “Your documentation should always have a lot of meat to it,” Dunn says. “At the end of every meeting, get and keep a comprehensive post-conference report detailing everything that was spent on rooms, food, beverages.” In fact, when you’re negotiating venue and hotel contracts, you can stipulate that the bill will be paid only after receipt of this report, Dunn says.

In the end, Sarbanes-Oxley is not about punishing meeting planners who accept gift baskets from vendors, Goldberg says. It’s about preventing large-scale corporate financial mismanagement and keeping companies’ activities above-board. But organizations of every size are vulnerable to harm by unscrupulous employees and questionable practices – so meeting planners who take the spirit of the Sarbanes-Oxley Act to heart will always be on the right track.

“Most of the provisions of Sarbanes-Oxley aren’t necessarily mandated outside the publicly-held sector, but it’s still setting a benchmark for everyone,” Dunn says. “It places more personal responsibility on the individuals who manage an organization. We never have to look far to find companies and organizations doing things they shouldn’t; you don’t want to be one of them.”

For a sample document-retention policy and other helpful information, visit www.howehutton.com or e-mail [email protected]. MM&E

(Julia M. Johnson is the Assistant Editor from St. Louis, Mo.)

 

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