Sarbanes-Oxley and transparency

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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