Sarbanes-Oxley and Intergenerational Equity

1. Sarbanes-Oxley and Intergenerational Equity Adopting SOX Risk Assessments to Ensure Intergenerational Equity Cynthia Sneed John Sneed Jacksonville State University Spring 2011

2. Purpose of the Research • Is there a need for SLG to adopt Sarbanes-Oxley (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.

3. 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

4. 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.

5. 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.

6. 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!!

7. 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.

8. Primary Objective of SOX Accountability and Responsibility: Executives are Accountable for their Actions and Responsible for their Decisions

9. 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.

10. 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

11. 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.

12. 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?

13. 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.

14. Life and Times of Chancellor Roy Johnson • 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.

15. 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

16. 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

17. 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.

18. 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.

19. 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.

20. 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!!