Bulldog Accounting?

Corporate accounting scandals may be fading from the front pages, but the nonprofit sector is coming under more scrutiny.

In July, Yale University announced that the Department of Health and Human Services, the Department of Defense, and the National Science Foundation subpoenaed documents relating to how the school allocated research expenses and how it reported faculty work devoted to grants. The subpoenaed documents relate to 47 grants and contracts totaling about $45 million and spanning a decade, says Tom Conroy, a Yale spokesperson.

Part of the motivation behind the Yale inquiry may be the federal government flexing its muscle, says David Crawford, a former auditor with the University of Texas who now runs his own risk-management firm and closely tracks university-compliance issues. "When they [investigate] Yale, everybody sits up and takes notice," he says.

Debra Zumwalt, vice president and general counsel at Stanford University, says that because accounting at universities and other nonprofits can be more complex than at for-profit companies, irregularities are more likely to arise from honest mistakes. Nonprofits must not only track expenditures from a multitude of received funds, she explains, but they must also ensure that all spending is earmarked according to a fund's criteria.

Like for-profit companies, many nonprofit organizations are currently examining accounting controls, and many are adopting Sarbanes-Oxley.