For non-profit organizations, there are various situations that may arise that will trigger the need for an audit. There are certain Federal and California State laws that determine when an audit must be performed. There are also various situations in which it may not be required, however, would still be beneficial for a non-profit.
As of December 2014, new audit requirements have been established under federal law. Under the Proposed Uniform Guidance, Subpart F, which took effect in December 2015, all non-federal entities that receive Federal funds and expend more than $750,000 of said funds in a given year must have an audit.
A non-profit organization may be exempt under Federal laws, but still be required under California state law, which has its own separate threshold for audit requirements. Under California Government Code Section 12586, any charitable corporation, unincorporated association, and trustee that accrues gross revenue of $2,000,000 or more in any fiscal year, must prepare annual financial statements that are audited by an independent Certified Public Accountant in conformity with generally accepted auditing standards. Revenue that is received from a government entity for grants and contracts for services that is already required to be accounted for, will not be counted towards the $2,000,000 in gross revenue.
If a non-profit organization is not required by either Federal of state law, it can still be advantageous to have an independent audit conducted. By having an audit performed, a non-profit organization provides assurance to donors, current and potential. In some cases, potential donors will also desire to see an auditor’s report before making a donation. When the benefits outweigh the costs, an organization should have an audit performed to demonstrate financial transparency and to alleviate the concerns of potential donors.
Written by Michael Klein, CPA, CMA, EA, Manager