The nonprofit world is full of government regulations, best-practices and donor requirements. It can be difficult to navigate these mandates and determine exactly what an organization needs to do to stay compliant with California nonprofit audit requirements.
Nonprofit organizations are subject to requirements set forth by both state and Federal governments. The California nonprofit audit legal requirements are based on the charitable organization’s size, type and income.
Determining California Nonprofit Audit Requirements
There are several factors to consider when determining whether an audit is mandated for a California nonprofit organization. Even if an audit is not legally required, it is important to keep in mind that some private foundations require or expect their nonprofit grantees to conduct annual independent audits. Annual independent nonprofit audits are generally considered a best practice, even if not prescribed by law. In fact, some donors will not consider funding an organization without first reviewing the results of an independent audit.
- According to California law, a charitable nonprofit corporation with a gross annual revenue of 2 million dollars or more and that is currently required to file a report with the General Attorney must have their financial statements audited by an independent CPA.
- Organizations that receive a certain level of state funding are often required to submit an independent audit to the agency that provided funding, or to other state agencies. Federal law mandates the completion of an independent audit if the nonprofit expends $750,000 in federal funds in a single year. If an organization receives state or federal funding, an audit is usually required.
When a California Nonprofit Audit is Required
If an organization is required to complete an audit, California law also requires that the audit is conducted appropriately. The rules governing independent audits for nonprofits are specific and must be adhered to accordingly.
- An audit must be performed by an independent CPA and in accordance with generally accepted accounting principles.
- The Attorney General must make audited statements available for inspection no later than nine months after the close of the fiscal year.
- Charities in corporate form must have an audit committee, appointed by the board of directors. This committee may not include any staff members or anyone who has financial interest in, or does business with the organization.
As a charitable organization grows and its funding sources expand, an independent audit may become required by law, a funding agreement, or another stakeholder requirement. A seasoned CPA can help determine which audit requirements apply to your organization and guide you through the process. Choosing a firm with nonprofit experience can also help make audit preparation more efficient. The Nonprofit Audit Guide provides additional guidance on audit requirements, preparation, and key considerations for nonprofit organizations.
At Ernst Wintter & Associates LLP, we provide comprehensive audit, review, examination and compilation services as well as tax services that fit your business needs. Our professionals have specific expertise in the financial services industry, nonprofit sector, and employee benefit plan audit requirements. Please contact us today.
