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sarbanes oxley act

I’m Not a Board Member, So Sarbanes Oxley Doesn’t Apply to Me…Does it?

Corporate and financial disclosure may be the most visible part of SOX, but that’s not all it covers.

If you become aware of fraudulent behaviors, you must report and you will be protected.

When most people think of the Sarbanes-Oxley Act (or SOX), they think of the scandals of corporate reporting revealed by the U.S. Securities and Exchange Commission (SEC) investigation into Enron or similar hearings.

SOX sets standards of financial reporting for all U.S. company boards, management, and public accounting firms. But a significant part of the act covers codes of ethics for publicly traded firms. And this part of the act impacts the way you conduct yourself day-to-day.

Everyone has a part

SOX requires executives to communicate your company code of conduct to all employees. Likewise, when your CEO verifies that the information in a financial report is accurate and complete, there’s an implication that you and your fellow employees have certified that you have no interests that could conflict with the corporate filing.

Under SOX, conflicts of interest include anything that might adversely affect your judgment, or even have the appearance of adversely affecting it.

What a conflict looks like

The most common conflict is not a gift or bribe, but an undisclosed family relationship with a co-worker, customer, supplier, or competitor of the company.

Other examples of potential conflicts include:

  • ​Accepting cash or a personal benefit that obligates you in any way to a customer, vendor, or competitor.
  • ​Doing personal business with your company’s customer, supplier, or competitor, if your personal business puts you in competition with your company.
  • ​Having a financial interest in a customer, supplier, or competitor, beyond owning less than 1% of a publicly traded company.


Fraud against shareholders – the common thread

You are responsible for disclosing any potential conflicts or violations–your own or those of others

For example, financial reporting practices that you disapprove of. But a practice that violates Generally Accepted Accounting Principles (GAAP) doesn’t constitute a SOX violation if it’s not employee fraud. Conversely, an unrelated event like a sexual harassment claim may be a violation if company funds are used to finance or conceal the act or event.

SOX protects you

You are protected by SOX when there are reports to the SEC, you report suspected violations internally, to regulators, and perhaps the media. SOX protects employees, subcontractors, officers, independent contractors, and in some cases former workers. Individuals who don’t report potential violations are subject to penalties.

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