Friday, March 24, 2000

the Federal Sentencing Guidelines for Organizations and Sarbanes-Oxley Act

The first section includes three key dimensions of ethical compliance in the areas of competition, safety, and environment which are voluntary boundary, core practice, and mandated boundary along with examples. Second, I will give a brief summary of the Sarbanes-Oxley Act and details on its eleven titles. Lastly, I will explain how the Federal Sentencing Guidelines for Organizations (FSGO) keeps organizations ethical.
1.) Voluntary Practices: This is where management initiates boundaries of conduct which includes beliefs, values, voluntary polices and voluntary contractual obligations. An example of this is would be giving back to the community by investing in a piece of land for public usage such as a park that the surrounding community could enjoy, or providing employees with a good health coverage regardless of work hours (part-time vs. full time). (Business Ethics, pg 90-91, 2008)
2.) Core practices: Are usually best practices that are documented that ensure compliance in business. This usually includes legal requirements, industry self-regulation, and social implications. An example of a self-regulatory body would be Better Business Bureau which provides direction for solving customer disputes and reviews advertising cases. The board of directors is usually the people accountable for core practices and is required to oversee ethics and compliance of that particular business. (Business Ethics, pg 91, 2008)
3.) Mandated boundary is the external boundary of conduct. This includes laws, rules and regulations that can affect a company. These laws and regulations are established to protect the stakeholders. And usually these laws can change within time, because these laws encompass regulations that are acceptable by society at that certain time; therefore, what is acceptable during one era, may be changed tomorrow, because of different views by the courts and society. There are laws and regulations established by federal jurisdiction/Congress and state legislation; these laws encourage competition and protection for the consumers, workers and the environment. For any business/organization, ethical and legal standards need to be enforced in order to reduce legal risk and promote ethical standards in today’s society. (Business Ethics, pg 93, 2008) An example of laws promoting safety is OSHA. Laws that promote equality would be The Equal Pay Act of 1963 or Americans with Disabilities Act of 1990. Finally, an example of laws protecting the environment would be regulations of the Environment Protection Agency (EPA) which relates to air, water, and land pollution; this would include the clean air act that many establishments have now; recycling of computer parts, and cleaning up toxic waste caused by businesses, such as Minnesota Mining and Manufacturing Company (3M) dumping perfluorochemical waste in Woodbury Site or the Oakdale Dump in the past. [Minnesota Department of Health, 2005, 2007]
In 2002, the Sarbanes-Oxley Act was implemented to create a federal system that oversees business accounting practices. This law makes securities fraud a criminal offense and establishes harsher penalties for business fraud. This law also created an accounting oversight board that registers, established standards for audits, inspects, investigates, and enforces compliance for accounting practices in businesses. It also requires corporations to establish a code of ethics for financial reporting and develop greater transparency in financial reporting to its investors and stakeholders. This law also requires top management to sign off on their firm’s financial status and hold them responsible for any misrepresentation of their company's financial position through fines and perhaps incarnation. 'It also requires the executives of any company disclose stock sales immediately and prohibits companies from making loans to top executives' This law was established , because of all the deception and fraudulent activity done by businesses, that in itself, created a great distrust in their stakeholders. This act/law was put into effect to gain back the confidence of the stakeholders. A couple examples of companies that did fraudulent activities are Enron and WorldCom. (Business Ethics, pg 15, 102-108, 2008)
There are eleven titles :
Title I, Public Company Accounting Oversight Board – It provides auding services and oversight as stated as above [Sarbanes-Oxley, 2009]
Title II is to establish standards for external auditors independence and limits conflicts of interest. It addresses new auditor, approval requirements, audit partner rotation, and auditor reporter requirements. [Sarbanes-Oxley, 2009]
Title III is corporate responsibility for accuracy and completeness of corporate financials. [Sarbanes-Oxley, 2009]
Title IV is enhanced financial exposures. This includes reporting requirements for financial transactions, off balance transactions, stock transactions of corporate officers, and internal control to ensure accuracy. [Sarbanes-Oxley, 2009]
Title V describes measures to restore investors confidences. [Sarbanes-Oxley, 2009]
Title VI defines practices and conditions to restore investors confidence and security authority to censor or bar security professionals from practice. [Sarbanes-Oxley, 2009]
Title VII requires Comptroller General and Security Executive Commission to study and report their findings. [Sarbanes-Oxley, 2009]
Title VIII is the Corporate and Criminal Fraud Act of 2002 which describes criminal activities for fraudulent manipulation, destruction of financial records. [Sarbanes-Oxley, 2009]
Title IX is the White Collar Crime Penalty Enhancement Act of 2002 which increases criminal penalties created by white collar crime and conspiracies. [Sarbanes-Oxley, 2009]
Title X states that no matter what, the CEO must sign the company tax return. [Sarbanes-Oxley, 2009]
Title XI is a Corporate Accountability Act of 2002 was created to seek out corporate fraud and record tampering and charge the act of criminal offices. [Sarbanes-Oxley, 2009]
One disadvantage of this act is that the cost of compliance is high; therefore, some small businesses and companies outside the USA are opting out of the US market. [, 2005]
Congress passed the FSGO in 1991 in order for organizations to develop and promote ethical and legal compliance programs; whereby, these programs need to be continuously monitored and updated. The FSGO also made public the guidelines to govern sentencing for offenders by the federal judges. Penalties for sentencing are based on a point system for determining the severity of the offense.
‘The guidelines encourage organizations to develop ‘effective programs to prevent and detect violations of law’, and prescribe seven ‘types of steps’ that should be included in an effective program. Where organizations demonstrate an effort to implement the seven steps, lower sanctions are levied by Federal Judges.’ (, 2008)
The synopsis of this FSGO puts the responsibly of the program effectiveness directly ‘on the shoulders of the firm’s leadership’ Those companies who participate also have the responsibility to collect data and measure the impact on how well employees respond to various ethical and legal risks. [Business Ethics, pg 110, 2008]
Like the Wild West in the past, laws and regulations were passed in order to get crime under control. This is true with businesses that produces fraudulent activities and have a mindset they can get by with it. The Federal Guidelines for Organizations and the Sarbanes-Oxley Act are watch-dogs for the stakeholders, community where the business resides, and the environment of our country. These laws and regulations provide businesses with incentives to take a hard look at their ethical issues and be responsible for their actions. Like I said in the papers before “you do the crime, you do the time”.

Anonymous (2007, Feburary). 3M Woodbury Site
Retrieved January 31, 2009, from Health Department of Minnesota website:
Anonymous (2005, June). 3M - Oakdale Disposal Site: Perfluorochemicals
Retrieved January 31, 2009, from Health Department of Minnesota website:
Anonymous (2005, April 04). Repeal Sarbanes-Oxley!
Retrieved January 31, 2009, from House of Representatives website:
Anonymous (2008). Federal Sentencing Guidelines
Retrieved January 31, 2009, from website:
Anonymous (2009). Sarbanes-Oxley Act of 2002 [11 titles]
Retrieved January 31, 2009, from website:
Ferrel, O. C., Fraedrich, J., & Ferrell, L. (2008) Sarbanes-Oxley Act In Business Ethics Ethical
Decision Making and Cases (pg. 15). Boston, New York: Houghton Mifflin Company.

Ferrel, O. C., Fraedrich, J., & Ferrell, L. (2008). Managing Ethical Risk Through Mandated and
Voluntary Programs. In Business Ethics Ethical Decision Making and Cases (pp. 90-91).
Boston, New York: Houghton Mifflin Company.
Ferrel, O. C., Fraedrich, J., & Ferrell, L. (2008). Laws Protecting the Environment. In Business
Ethics Ethical Decision Making and Cases (pg. 110). Boston, New York: Houghton Mifflin

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