Introduction

The Sarbanes-Oxley Act is a federal law enacted as a comprehensive reform of financial practices mainly for businesses. It was named after Senator Paul Sarbanes and Representative Michael Oxley who were its principal architects. The primary focus of the act is on publicly held corporations, financial reporting, audit procedures, and their internal financial controls. The law was passed to prevent corporate scandals that had occurred between the year 2000 and 2002. There were widespread fraud cases experienced at Enron and other companies during that period. This situation resulted in a demand for new standards for public accounting firms corporate board of directors, as well as corporate management. The Securities and Exchange Commission enforced it to become a law in July year 2002. The Sarbanes-Oxley Act of 2002 has impacted the leadership of healthcare organizations. The leadership must include a formal statement about financial reports. More so, any material that contains omissions is considered misleading. According to the act, the statement must present financial condition fairly. In this case, the signing officers must conduct internal controls and report all the findings. The Sarbanes-Oxley aims at strengthening the internal management controls of healthcare organizations and increases the quality of healthcare financial reporting. This act was passed to avoid repetition of scandals and conflicts of interests in the health care sector experienced in organizations between the year 2000 and 2002.

Reforms Initiated by the Sarbanes –Oxley Act that have impacted Healthcare

The scandals experienced that had been experienced necessitated for legislative changes to protect the residents of New York from exploitation. Corporate abuse involves not only financial institutions but also health care organizations and the way they conduct their daily activities. Therefore, the Act impacts the healthcare organization in various forms because it aims at safeguarding their operations through ensuring minimal or no fraudulent cases.

Proposal Reforms that would impact the healthcare organizations

Annual Report Requirements

According to this bill, both treasurer and the president should sign the annual report to certify that they have reviewed the report, and it does not contain any information that is misleading. The president and the treasurer for not-for-profit Corporation have to attest the accuracy of the financial information through making sure those internal controls are effective. They should report any material changes or deficiencies in internal control operations or fraud to the auditing committee. The oversight to the healthcare organization, as per the proposal would be done through existing requirements under New York State Insurance, Hygiene laws and regulations and public health. The healthcare organizations or corporations are required to comply with reporting standards that are more stringent and coordinate with both internal and external auditors. By doing so, any loopholes that would result in fraud would are sealed completely.

Filing Reports

There are more stringent provisions that were put in place as per the Act. The requirements in line with the filing of reports include providing complete and accurate reports. If such statements are found to be incomplete, it will be considered a breach.The move was to prevent recent scandals and aim at protecting residents from Not-for-profit corporate abuses. The healthcare organizations fall under this category and have been much impacted by the provision.

Audit Committee

The executive committee and an audit committee consisting of three or more directors are one of the requirements of the Act. The healthcare corporations are required to appoint or restructure an audit committee and make sure that no officer with a conflict of interest is included as a member of the committee.

Contracts and Transactions

According to the act, the board should obtain and rely upon the data that is appropriately comparable before approval of a contract. It should also provide the basis for approval. There is many transactions or contracts that healthcare organizations handle. Therefore, the act improves the levels of fairness of the contract and adequate disclosure to the directors.

Indemnification

The indemnification process to the directors and officers must comply entirely worth article7 regardless of contents of bylaws or certificate of incorporation. Generally, the act prohibits any loopholes for fraud or conflict of interest in healthcare organizations. The indemnification process has to be conducted in good faith, whereby fairness is emphasized.

Other provisions

There are two other provisions which are very critical to the healthcare organizations. First, the government requires that a whistleblower program is established. The program contains the language that prohibits the provider from retaliating against the employer had created the complaint. The second provision is the document retention process.It requires the provider to retain documents after they are informed or become aware of an investigation.

Financial Implications of the Sarbanes-Oxley Act on for Hospitals

Even though the Sarbanes-Oxley Act was passed to take care of issues that took place outside the healthcare industry, its implementation has impacted the financial management of hospitals. The SOX act emphasizes analyzing and strengthening internal controls. Section 404 of the act requires managers of the healthcare businesses to develop maintain and assess internal control procedures effectively. The SOX Act aims to improve governance, quality of financial statements and risk management systems. Effective internal controls can reduce cases of fraud, especially on Medicare accounting for refundable fees, nursing homes patient accounting as well as third-party reimbursement analysis.

Pertinent Issues on Hospital Audit Committees

The SOX Act has emphasized six relevant issues that have much impact on the working of healthcare institutions. Their primary objective is to ensure no cases of fraud are experienced through sealing possible loopholes that could lead to a conflict of interests. According to the Act, a member of the management committee cannot be on the audit committee. This provision ensures that there are transparency and accountability of executive staff. Members of the hospital committee are given specific independence for them to perform their duty effectively. That is why no member of the hospital committee is allowed to sit in the audit committee.

Another critical issue is that according to the SOX Act, the audit committee is the ones supposed to hire the external audit firm. There should be an independent audit firm that is supposed to audit finances for the hospitals and healthcare organizations in general. The management is not supposed to participate in this process. The committee is supposed to hire an independent audit firm.After every five years; the lead audit partner is changed to ensure no conflict of interest appears.

More so, audit committees for the hospitals have to keep a distance from the external auditors. Even though the independent audit firm works closely with the board and the audit committee, it only reports to the committee. The Sarbanes-Oxley requires the two governance to work closely but independent to uphold financial integrity.

The audit committee for the hospitals also works closely with hospital compliance. They work closely with hospital Chief Compliance Officer to ensure that all rules and regulations that apply to non-profit hospitals are considered and adhered fully. Chief compliance officer also should be present in all meetings conducted by audit committees. The Act also directs the audit committee to ensure health organization stays financially honest and can monitor all matters relating to finance. The committee reviews questionnaires of conflict of interest to make sure that the organization integrity is in line with those of employees. Therefore, in general, the Sarbanes –Oxley ensures that are healthcare organizations are vigilant at all times when it comes to issues of misappropriation of funds, fraud, and conflict of interest.

How and why the act impacted health care

Public Accountability

The SOX Act ensures that shareholders’ interest is protected by corporate governance. Therefore, boards of hospitals are supposed to provide the public interest is safe and the clinical care they offer to the public is perfect in terms of quality.

Transparency Policy

The Act directs corporations to practice transparency when it comes to financial disclosures. Therefore, the hospitals have to maintain transparency culture through publishing policy statements which commit the organizations to help the public. They should disclose understandable information concerning clinical outcomes, patient safety, and satisfaction.

Board Quality Committee

According to the Sarbanes-Oxley Act, the corporate audit committee should oversee the financial integrity of an organization. The act has been beneficial to all healthcare organizations because those that have a board committee responsible for quality oversight have been performing highly. Therefore, the board quality committee, as provided by the SOX Act has boasted healthcare organizations when it comes to performance.

Independent and quality expertise

The SOX Act requires any member of the audit committee to be a member of the board of directors. He/she should be independent as well. Many healthcare systems and hospitals have embraced this concept by seeking directors with adequate skills when it comes to audit and finance. Such members usually sit on the oversight committee and the board as well. The move has seen improvement in terms of transparency, accuracy, and quality of service in healthcare organizations.

Active management

After the Sarbanes-Oxley era, boards usually engage actively in discussion, education, and questioning on the information that control provides. Their directors of hospitals and other healthcare providers generally utilize the organization information, compare it to the past performance, industrial average and the best class. The board also seeks to know whether the organization is improving fast enough. In case the organization underperforms, the committee seeks to understand from management whether they have a realistic plan to develop and when to expect best results. The accountability question is well addressed when it comes to this discussion. The provisions of the Sarbanes Act have provided for a platform for such checks which in turn leads to accountability and best performance in the healthcare organizations.

Conclusion

The Sarbanes-Oxley Act of 2002 was created to curb malpractices like fraud and conflict of interest in financial institutions. It called for transparency and accountability in all businesses and transactions conducted by organizations. Even though the act was not mainly meant for healthcare organizations, it finally impacted hospitals and general healthcare industry to a great extent. The leadership must now include a formal statement about financial reports. The Sarbanes-Oxley aimed at strengthening the internal management controls of healthcare organizations and increases the quality of healthcare financial reporting. This act passed to avoid repetition of scandals and conflicts of interests experienced in organizations between the year 2000 and 2002.

Do you need high quality Custom Essay Writing Services?