Spring 2007 issue of Horizons

INDUSTRy u

HOSPITALITY

The Sarbanes-Oxley Act (SOX) When most people think about the Sarbanes-Oxley Act, or “SOX,” they typically think about its effect on public companies. It is true that SOX was designed for public companies; however, it also provides some “best practices” that clubs and other entities in the hospitality sector might consider to improve their business environment.

executed fairly and in the best interest of club members. The conflict of interest statement also should include a statement that board members and managers agree to keep all sensitive business issues of the club confidential. Signing this statement and disclosing this information annually will help reinforce the importance of identifying these relationships by all board members and the general manager as they make decisions on behalf of the club. Document Retention Policy SOX prohibits the destruction of documents (both paper and electronic) used in legal and other official proceedings. In order to ensure that all regulations are being followed, clubs should develop an official document retention policy. This written statement will ensure that all written and electronic (including e-mail and voice mail) documents are properly maintained and destroyed as required. Forum for Addressing Illegal/Unethical Acts It is important for clubs to have a formal policy in place for employees to report concerns in a confidential manner about illegal or unethical behavior. When issues are reported, they should be communicated directly to the general manager and/or the board of directors. The policy should also include provisions to protect employees from any retaliation for reporting such matters in accordance with the policy. Changes in policies and procedures relating to the items mentioned above may require updates to the entities’ by-laws, which may necessitate disclosure on Form 990. While country clubs and other hospitality entities may not spend a lot of time thinking about how SOX affects their business, the act provides guidance on ways current policies and procedures can be improved. Being proactive in adopting and adhering to these policies will help clubs better protect the interest of their clubs and, ultimately, their members.

Audit Committee – Financial Expert Many of SOX’s provisions relate to formal audit committee requirements. For clubs, the finance committee may already cover many duties SOX assigns to a more formal audit committee. One key provision is having a financial expert – someone with knowledge and experience regarding monetary and financial reporting matters. This individual will help make the board of directors well- rounded and ensure there are fiscally educated eyes guiding decisions. In addition to naming a financial expert to the board, the finance committee should consider the following: • Create an environment to reduce risk of fraud by reviewing and overseeing the Internal Control process. • Interact with the outside auditor throughout the year. • Review actual versus budgeted results on a monthly basis. • Inspect proper receipt and review of bank statements to ensure established policies are being followed by management. • Review proper segregation of duties in all key transac- tion areas. Conflict of Interest Statement Clubsalsoshouldconsider developingaconflict of interest statement for board members and general managers to sign. As 990s (the Federal Tax Form typically filed by not- for-profit clubs) are now asking whether an entity has a conflict of interest statement, members and the general public will be aware of the absence or existence of such a policy. This statement should disclose any compensation or payments made by the club to board members, managers or their family members. Additionally, any relationships (professional or personal) that board members or managers have with a company engaged in business activity with the club should be identified. These disclosures should help ensure transactions are

Questions? Contact:

Jim Mather, CPA Partner-in-Charge Hospitality Services Group 314-290-3470 jim.mather@rubinbrown.com

21 u summer 2007 issue

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