Sarbanes-Oxley and
Intergenerational Equity
Adopting SOX Risk Assessments to
Ensure Intergenerational Equity
Cynthia Sneed
John Sneed
Jacksonville State University
Spring 2011
Purpose of the Research
• Is there a need for SLG to adopt SarbanesOxley (SOX) requirements to enhance
financial reporting?
• Are the current internal controls and risk
assessments sufficient to satisfy taxpayer
demand for the efficient use of taxpayer
provided resources.
Key Provisions of SOX
• Create Public
Accounting Oversight
Board
• Ensure Auditor
Independence
• Increased Disclosure
Requirements for
Public Companies
• Requires Disclosure
of Conflicts of
Interest
• Requires Top Execs
to take Personal
Responsibility for F/S
• Stiff penalties for
Fraud and
Malfeasance
Provisions that Apply to Public
and Not-for-Profit Companies
• Document destruction: illegal to destroy,
alter or prevent a documents use in any
legal or civil investigation.
• Whistle-blower Protection: illegal for any
company to retaliate against an employee
who reports suspicious activity by the
employer.
Applications of SOX to SLG
• Constitutuents such as taxpayers, creditors
and oversight agencies are likely to
demand SOX risk-assessments.
• Taxpayers may incur higher borrowing
costs for governments with real or
perceived internal control problems.
• Taxpayers are angry and tired of waste and
abuse of power at all levels of gov.
Why the attitude?
Thomas Jefferson
I predict future happiness for Americans if they
can prevent the government from wasting the
labors of the people under the pretense of taking
care of them.
Jefferson/Ford/Reagan/Common Sense?
Government large enough to do everything for you
is large enough to take everything from you!!
Concept Statement #1
Intergenerational Equity
Key objective of governmental reporting is
intergenerational equity. Financial
reporting helps users assess whether
current-year taxpayers pay for current year services and that future generations of
taxpayers are not burdened with the cost of
providing current-year services today.
Primary Objective of SOX
Accountability and Responsibility:
Executives are Accountable for
their Actions and Responsible for
their Decisions
GASB on accountability:
Accountability requires governments to
answer to the citizenry to justify the raising
of public resources and the purposes for
which they are used.
What is Accountability?
• Webster:Main Entry:
: the quality or state of being accountable ; especially :
an obligation or willingness to accept responsibility or
to account for one's actions
• Answerability
• Responsibility
Government Accountability
• Government accountability is based on the
belief that the citizenry has a right to know
a right to receive openly declared facts that
may lead to public debate by citizens and
their elected representatives.
Taxpayer Complaints
• What do they do with the money we give
them?
• Why are they always asking for more?
• How do we know that our money is spent
wisely?
Governor/Policymakers Attempt
to Enforce Accountability
• 2002: Gov. Bob Riley (GOP) elected in
Alabama.
• 2003: Gov. Riley attempts to pass one billion
dollar tax increase: fails by 2/3 margin.
• 2004: Riley demands accountability by requiring
audits of all public school systems.
• 2005: The fun begins: prior to 2005 no
required audits of school systems.
Life and Times of Chancellor
Roy Johnson
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School Principal:1976-1990;
Elected to the legislature:1974-1990;
Employed by AEA: 1990-1991;
President Southern Union JuCo:1992-2002;
Chancellor of Junior College System:2002-2008;
2008-present: working for the federal
government.
Johnson’s Legacy
• Pay to play: violates
no-bid contracts law
• Earns $237k salary
• Immediate family
earns $560k from
JuCo jobs
• Wife LuAnn earns
$90k working at S.
Union JuCo
• Son Steve number
contracts with JuCo
totals over $6k a
month.
• Steve’s wife earns
$47,000k as
consultant to JuCo: no
evidence of work
product
Legacy continues
• Daughter earns 21k
from Fire College; 4K
from S. Union; also
works full-time for
husband’s law firm
• Son-in-law (lawyer)
Earns $72k as legal
“consultant” to three
JuCo campuses
• Son Steve leaves Fire
College (bad
publicity) for Lawson
State to oversee
capital projects $49k;
• Steve also earns $49k
from Julian Jenkins
Architect for same job
Summary
• Alabama community college system
Chancellor Roy Johnson and his immediate
family received more than $560,000 for
jobs and contracts they held in 2005:
Johnson had been Chancellor since 2002.
• Best friend from childhood Jimmie
Clements receives no-bid contracts worth
millions.
Johnson’s Legacy
• 32% of the entire Alabama legislature was
either directly on the JuCo payroll or
immediate family was on the payroll;
• 29 legislators were on the payroll with no
work product, most with no offices or
telephones or computers ever turned on in
their offices.
Johnson’s Legacy
• Traded multi-million contracts for
community college work to contractors in
exchange for building homes for himself,
his son, his daughter and his best friend
Jimmy Clements.
Johnson’s Legacy
• Fell on his sword to protect his family: has
been sentenced to jail but as a federal
witness has managed to avoid actual
imprisonment to date.
• Forfeited $1 million home in Opelika;
$600k penthouse at the beach; $200k
cabin in Gatlinberg: on $237k salary!!