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January 2004 – Sarbanes-Oxley Act, State Budget

State Budget News

A compromise in the budget standoff between Governor Granholm and House Republicans was reached after long negotiations. The deal calls for a delay in the reduction of the State income tax which will now go into effect in July. In addition, the compromise calls for further cuts to the Single Business Tax, as well as an additional cut of $12 million in State spending. The money for the additional $12 million in spending cuts will come from administrative savings as well as transferring unused funds from the prison vocational education program to the general fund.

These cuts come in addition to the previously announced cuts in the Executive Order which are as followed:

General Fund Reductions:

Special Purpose Revenue Reductions:

To view specific program cuts, the entire Executive Order can be viewed online here:
http://www.mi.gov/documents/EO_2003_2x_80281_7.pdf

While this puts an end to the task of balancing this year’s budget, more difficult times may still lie ahead. Michigan is facing a shortfall of $500 million to $2 billion for FY 2004-2005, and Legislators are promising that more drastic cuts to state services will be necessary.

Lobbying Reports Due

MNA would like to remind its members who lobby that the Financial Report Summary forms are due to the Secretary of State’s office by January 31. All reports turned in after January 31 are subject to late fees. To download the form and instructions visit www.michigan.gov/sos

Questions on the Sarbanes Oxley Act

Numerous MNA members have been asking questions regarding the Sarbanes Oxley Act passed by Congress in 2002. This act was fueled by the Enron scandal and its purpose is to increase the public’s trust in the corporate America. For now, the majority of the Act only applies to publicly traded companies, however, there are two provisions that do apply to all corporations including nonprofits.

Provisions that do not legally apply to nonprofits, but that organizations may want to consider include:

• Prohibition of auditing firms providing both audit and non-audit services at the same time.
• Rotation of lead auditors (individuals not firms) every five years for a company’s annual audit.
• Disclosure of operational policies and financial positions (internal controls, financial statements, etc)
• Certification of financial statements must be provided by the CEO and CFO. These individuals also may not have worked for the firm conducting the audit for at least one year prior to the audit.
• General restriction of loans to the company’s executives and directors.
• Members of the company’s audit committee must not be on staff or receive compensation for consulting activities and must be on the group’s board of directors. The company must also disclose whether they have a financial expert on the committee, if not, they must explain this decision.

The following are the two provisions of the Act that do apply to nonprofits:

• Whistle-blower protection – a nonprofit must not retaliate against a whistle-blower and organizations should develop internal procedures for addressing this issue.
• Destruction of documents – the Act makes it a crime to destroy documents that could be used in a legal proceeding. BoardSource and Independent Sector, national organizations promoting the sector, encourage nonprofits to develop formal written policies for determining when a document should be destroyed and to maintain documents that relate to the operation and financial management of the nonprofit organization.

Federal Policy Update

MNA has monitored and taken action on several federal policy issues over the past few months, including:

• The CARE Act – this bill which will provide increased tax incentives for charitable giving as well as a simplification of the lobbying rules and regulations passed both the U.S. House and Senate in 2003, however, due to various political reasons the two bills were not reconciled in a conference committee prior to the House and Senate Holiday break. Independent Sector in DC, a lead organization pushing for this legislation, has warned that due to current fiscal and foreign concerns it will take a great deal of pressure from the field for the House and Senate to address this issue in 2004. MNA will continue to work on this issue. Thank you to all that contributed in making Michigan’s voice heard regarding the need for these provisions.
• AmeriCorps – The U.S. House passed appropriations for the bill which provides for $444 million in year 2004 funding for the program. This is an increase in funding from the previous year, when Michigan AmeriCorps programs faced striking blows to its infrastructure and ability to serve Michigan families. Although the House has passed the bill, the U.S. Senate adjourned for the holidays without addressing the appropriation. Also, the U.S. Senate has approved the confirmation of a new CEO for the Corporation for National Community Service (home of AmeriCorps).