Accounting and Audit Enforcement (SOX) Tasha Etter ACC 599 - Accounting Capstone Dr. Randolph Stanley November 19, 2017

Assignment 2: Accounting and Audit Enforcement (SOX) Tasha Etter ACC 599 - Accounting Capstone Dr. Randolph Stanley November 19, 2017 SOX Regulations and Audit Enforcement Introduction As we acknowledge the fifteenth (15th) year anniversary of the establishment and implementation of the Sarbanes-Oxley Act (SOX), which officially took effect in the summer of 2002, it requires an analysis of its true effectiveness on publically traded companies, and the implications it may have for non-profit organizations now and in the near future within the healthcare industry. A specific focus will be on the underlying effects SOX has had on for-profit organizations while purporting if such regulations can be beneficial to non-profit organizations in the future, with the continued goal of providing a benchmark from which all business can operate from with fraud prevention in mind. It will also take a look at a healthcare organization that has been charged with improprieties regarding financial fraud and identify whether mandating SOX for both profit and non-profit organizations will be beneficial in the future. Additional, this assignment will explore allegations made against Tenet Healthcare Corporation in 2013, for engaging in fraudulent activity in the form of bribery and kickbacks that were offered to smaller clinics in the state of Georgia for unwarranted patient referrals. Members of the organization did so to gain reimbursements from Medicaid, and Medicare governmental programs for referrals and services offered unnecessarily (Dept. of Justice, Oct.3, 2016). Publically traded organizations, regardless of industry, must adhere to SOX regulations to avoidpenalties, be it financial or otherwise, issued by the SEC or other government agencies. Provisions of the Sarbanes-Oxley Act (SOX) apply to for-profit businesses by offering corporate governance and financial best practice guidelines as a result of significant misconduct that occurred within companies such as Enron, World Com, Tenet Healthcare Corporation, and Allegheny Health, Education and Research Foundation (AHERF). The later, AHERF, filed bankruptcy and was considered one of the largest recorded, of a healthcare organization in the United States (Loubeau and Griffith, 2012, p39). While there is a litany of regulations that exist, the ones under SOX that appear to most concerning in a for-profit healthcare organization include the need for there to be: (1) public accountability, in which the organization identifies the importance of corporate governance to protect the interest of shareholders and communities served; (2) a transparency policy that requires organizations to be transparent when disclosing their financial statements and position; (3) a board quality committee known as the audit committee which is formulated with existing board members who are required to oversee the integrity of the organization's finances, (4) independence and quality expertise on the audit committee and typically includes at least one member who is termed a financial expert and can understand the financial information being presented to the audit committee and by the external auditor; (5) active engagement, which means that the audit committee is involved in terms of educating (other members), questioning, and discussing the information received from management; and (6) Independent audit quality which is achieved by retaining an external auditor who works directly with the audit committee and provides annual reports on the organization's financial position, accounting practices, and identifies any issues (mis-statements) pertaining to internal controls and weak control processes within the organization, and provides recommendations for corrective action (Zablocki, 2010, p3-6). Although SOX regulations were explicitly designed with for-profit organizations in mind, many non-profit organizations can benefit by incorporating SOX regulations, as a basis for business operations and best practices within the organization. In recent years, many non-profits have voluntarily adopted SOX regulations (while not required) with the goal of enhancing corporate responsibility and governance from the top down. When such financial atrocities like the AHERF scandal occurred, which noted as the largest bankruptcy case in US history for a healthcare organization (Demetrious, Toddy, 7 Scielzo, 2003, p3), everyone took note. Thus, non-profit entities are realizing that significant benefits are reaped by implementing SOX regulations into their corporate governance structure, so fraud at this heightened level is curtailed or avoided altogether. Additionally, implementing a Code of Ethics/ Code of Conduct that details separation of duties within the organization from the top-down, can help to minimize, if not eliminate, fraudulent behavior in the non-profit healthcare environment as well. Further, if non-profits are required to follow SOX regulations then accountability by the organization's CEO and/ CFO are imposed, and they must continually certify to the organization's financial statements and attest to its correctness, soundness, and without material faults. This mandate alone should be a reason to reduce fraud committed by management and increase corporate governance. These terms would also positively increase public confidence with non-profit organizations and may ultimately correlate to increased donor efforts for the particular healthcare organization.