Member Article

Appeared in Lone Star Express, a puclication of the Lone Star Chapter of the Healthcare Financial Management Association, September 2002. The recent reports of corporate fraud, improper accounting practices, and mismanagement have resulted in new legislation and stock exchange standards for publicly-traded corporations. In order to restore confidence in the nation’s financial markets, President George W. Bush began by issuing his ten-point plan emphasizing accountability for corporate leaders, improved financial disclosure, a stronger and more independent audit system, protection for small investors and pension holders, and exposure and punishment of acts of corruption. Congress followed with enactment of the Sarbanes-Oxley Act of 2002, making significant changes in laws affecting directors, officers and corporate reporting obligations. The New York Stock Exchange and the NASDAQ have submitted new listing standards to the Securities and Exchange Commission to: (a) increase the independence of boards of directors and their committees; (b) enhance independence standards and mandate responsibilities for audit committees; (c) establish corporate governance guidelines on executive compensation, stock options, insider trading and loans to directors and officers; (d) require more complete and fuller disclosure of material changes in financial condition and operations; (e) prohibit auditors from providing certain consulting services; and (f) require a code of conduct addressing conflicts of interest and compliance with applicable laws. The corporate responsibility laws and standards are directed at public companies and their business ethics, accounting and audit practices, financial reporting and disclosure, governance and shareholder rights. Their application to the health care industry and non-profit entities will be examined from several directions over the next several months. Public policy considerations indicate that the corporate responsibility scrutiny of non-profits will occur, and likely similar standards will be imposed. Bondholders, donors, state attorney generals, federal regulatory agencies like the IRS and SEC, and local communities will pressure non-profit health care corporations with the same reforms adopted in response to the corporate scandals of Enron, Arthur Andersen and others. Attention to how the public companies’ conflicts of interest, accounting/audit problems, inadequate board and committee monitoring of management, fraudulent financial disclosure, and breach of fiduciary duties arose and were discovered, and how they may be addressed and prevented should become part of the evaluation and compliance function of every health care organization.

 

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