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4 Critical Steps to Ensure That Your Organization is Sarbanes-Oxley (SOX) Compliant

By now you may or may not know that the Sarbanes-Oxley (SOX) Act passed by President Bush in 2002 can directly affect organizations that provide employee home sale relocation programs.

10 January 2013

To protect your organization in the event of an audit, be aware that Section 402 of the Act makes it unlawful for any public company to extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) either directly or indirectly.

In laymen’s terms, this can affect key people within your organization, specifically the chief executive officer, chief financial officer, and other high level executives within your company. The Act does not define the class of executives to whom loans are prohibited, and the term ‘executive officer’.

The good news is that your high level executives are still eligible for the majority of relocation benefits. If your company policy offers a miscellaneous allowance or a lump sum, they are still eligible to receive both types of disbursements, depending upon your company’s actual policy benefits. Since both disbursements are considered allowances and are typically based on salary; they are not considered loans and are completely legal under Sarbanes-Oxley (SOX).

Should your relocation policy provide home sale assistance, an EQUITY LOAN cannot be disbursed to a SOX employee. This is illegal. However, it IS legal to ADVANCE equity so long as the proper documentation is maintained and the following four steps are followed:

1.   Your company (in-house program) or your mobility management service provider acquires (purchases) the home according to the 11 IRS guidelines and the company’s relocation policy guidelines.

2.   Disburse funds. It is recommended that a percentage of the total equity is withheld until the actual closing or vacate date occurs. Also, funds should be disbursed directly to a title company whenever possible. Funds should only be advanced to an employee when needed for closing on a new residence.

3.   Disburse remaining equity directly to the employee at the time he/she vacates.

4.   Keep a copy of the contract between you, if in house, or the relocation company, and the employee for the conveyed property. Plus, keep a copy of the equity statement that clearly shows the date of acquisition, disbursement, and vacate date in the employee’s file.

By following these four steps with proper documentation, your organization will be squeaky clean in case of an audit.


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