ALBANY – Lying on Marcus Buckley's desk, waiting for his signature, is a “cold comfort letter.”
After the Enron Corp. and WorldCom scandals tarnished Wall Street's credibility, Congress in 2002 passed the Sarbanes-Oxley Act, or SOX, which requires executives of publicly traded companies to sign similar letters. The letter is an executive's assertion that no financial statements have been omitted from a periodic report and that there is no suspicion of fraud in it.
While Buckley does oversee a $74 million budget for a corporation that employs about 500 fulltime workers, his desk is not in the headquarters of a publicly traded company and he is not required under SOX to sign the letter.
Buckley is the vice president of finance and administration at the College of Saint Rose – a nonprofit corporation. And the cold comfort letter concerning an annual audit conducted over the summer is one of several examples of how colleges and universities in the Capital Region are mirroring publicly traded corporations as both shore up their fraud protection measures.
“A lot of college trustees are from the business world and they are asking, 'How are you implementing this?' ” Buckley said of SOX.
With the board of trustees at American University in Washington, D.C., last week firing President Benjamin Ladner for questionable spending of university funds, that is a question area college trustees are likely to ask more pressingly. A growing emphasis on fiduciary duties and ethical conduct on Wall Street is putting more pressure on academia to bolster its internal financial controls.
The National Association of College and University Officers and New York Attorney General Eliot Spitzer in 2003 started prodding nonprofit education corporations to adopt SOX principles, as do forprofit corporations on Wall Street. SOX applies only to publicly traded corporations.
Two years later, from financial statement certification letters to whistle blower policies, SOX principles are appearing more often in area college trustee board rooms as annual audits are completed this autumn.
“Our view is it would be imprudent not to take a close look at [Sarbanes-Oxley],” said Siena College Chief Financial Officer Paul Stec.
Buckley and Saint Rose President R. Mark Sullivan last year signed their first cold comfort let- ter and will do so again before a Thursday meeting of the Albany college's audit committee.
Siena College's board of trustees is considering requiring those certification letters to accompany financial reports. Last month, at Hilbert College in Hamburg, President Sister Edmunette Paczesny and Vice President of Business and Finance Rick Pinjowski signed their first audit certification letter.
“This is right now an active conversation at Siena,” Stec said of the implementation of SOX principles.
While the colleges' cold comfort letters do not require the extensive and expensive certification testing mandated by SOX, they do hold school officials more accountable for the content of financial statements.
SOX's certification letter requirement is meant to prevent claims made by corporate executives such as Kenneth Lay at Enron and Bernard Ebbers at WorldCom that they were not aware of the rampant fraud in their companies.
Ebbers was sentenced in July to 25 years in prison for leading WorldCom's $11 billion fraud scandal while the Clinton, Miss., telecommunications company's CFO and former Delmar resident Scott Sullivan was sentenced to 5 years for his involvement in the crime. Lay will be retried in January for fraud and conspiracy charges related to the Houston energy's corporation's collapse.
“At Enron and WorldCom you had management saying, 'We didn't know about it.' Now we're basically saying you have to know what's going on,” said Sandra Augustine, chairwoman of Hilbert's Economic Crime Investigation Department, one of a handful of full-fledged forensic accounting departments in the state.
While nonprofit companies and colleges do not have shareholders who can sue them, they often receive large sums of government funds and could see a suit from state or federal attorneys in the event of irresponsible spending.
“It does raise the bar. You could get sued for sitting on a board,” said Augustine.
At Saint Rose, Buckley said the adoption of various provisions of SOX has been easy because “nothing funny is going on.” Area college finance officials echoed Buckley's sentiment. However, from Schenectady to Washington, D.C., colleges in recent years have fallen victim to plundering executives.
Trustees at American University on Monday ousted the university's president of 11 years. They had put Ladner on administrative leave in August.
An audit commissioned by the university's board of trustees uncovered more than $500,000 in questionable spending for Ladner's personal chef, wife, chauffeur and an engagement party for his son. The board said Ladner should reimburse the university $125,000 for expenses and taxes on $398,000 in income between 2002 and 2005, according to the Washington Post.
UNION'S POLICIES
In 1992, Jack Maranville, a former Union College vice president, admitted to embezzling about $60,000 from the school over several years. Maranville pleaded guilty to third-degree larceny, was sentenced to two months in jail and agreed to pay back the money he stole.
Thirteen years later, Union CFO Diane Blake said the Schenectady college's internal controls are strong. She oversees a $110 million budget at the college that employs about 800. Annual financial reviews by the college's auditor, KPMG, incorporate SOX principles, such as having executives sign a type of cold comfort letter, she said.
In view of SOX, Union plans to develop a whistle-blower policy that will be included in its employee manual. SOX includes a provision saying publicly traded companies cannot discharge, demote, suspend or threaten employees who report corporate wrongdoing.
“We know these policies exist and we think it is a best practice and we are looking at how to implement them here,” said Blake.
AIDING WHISTLE-BLOWERS
Siena is also looking at adopting a whistle-blower policy, among other aspects of SOX. Within the following four months, Stec said he anticipates the Loudonville college's trustees to make decisions about the federal law.
“We have looked at SOX before and we're taking a closer look at it,” said Stec.
The State University of New York system already has a whistle-blower policy, but university auditor Kevin O'Donoghue said SUNY officials are “revisiting it in the context of Sarbanes-Oxley.”
SOX also requires company audit committees to develop procedures for handling complaints. Companies must develop whistleblower “hot lines” via mail, phones or the Internet that establish confidential and anonymous reporting systems. SUNY is looking to create an Internet-based reporting system.
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