The Sarbanes-Oxley Act was passed to restore public confidence in the
financial reporting of publicly traded companies. One major development in
the three years following the passage of the Act was the recognition that
private entities, including not-for-profit health systems, deal with many
of the same issues, specifically deficient internal controls on assets and
financial reporting, that plagued publicly traded companies.
Good internal controls are good business. Section 404 of Sarbanes-Oxley
outlines management's responsibility for annually assessing the design and
operating effectiveness of internal controls over financial reporting. It
also requires external auditors to annually audit and issue a report on the
effectiveness of a company's internal controls. Reviewing internal controls
provides an opportunity for not-for-profit health systems to enhance
governance and improve business effectiveness. However, annual audit of
those controls may be unnecessarily burdensome.
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