Audit Preparation
Nonprofit audits in California
California requires an audit once a charity's gross revenue reaches $2 million. Boards often misjudge what counts toward it.
The threshold
California Government Code §12586(e). Nonprofit Integrity Act
A charitable organisation that receives or accrues gross revenue of $2,000,000 or more in any fiscal year must prepare annual financial statements under GAAP, audited by an independent auditor.
The audited statements must be available for inspection by the Attorney General and by members of the public no later than nine months after the close of the fiscal year.
The exclusion most boards miss
Government grants do not count toward the $2 million threshold where the nonprofit is required to account to the grantor for how the funds were used.
This matters enormously for grant-funded organisations. Total revenue on Form 990 Line 12 is not the same as threshold revenue, and a board reading Line 12 can conclude it has crossed into a mandatory audit when it has not.
It cuts the other way too: if you have been commissioning audits on the strength of Line 12, it is worth checking whether the requirement was ever actually triggered.
What counts as gross revenue
For threshold purposes, gross revenue means total revenue as reported on Form 990 Line 12, including non-cash contributions: in-kind gifts, donated services where recognised, contributed securities.
Then the government grant exclusion above is applied. It is worth doing this calculation deliberately each year rather than assuming last year's answer still holds.
Where an audit is required, the audit itself is performed by an independent audit firm. Wago Pop prepares the organisation for it: a closed and reconciled year, functional expense allocation, grant and net asset schedules, the PBC list, and support through fieldwork.
The audit committee is written into the statute
Gov. Code §12586(e) · California Attorney General guidance
Charities at or above the threshold must have an audit committee appointed by the board. It is not optional and it is not the same thing as the finance committee.
It may consist of a single member, and it may include people who are not board members. It may not include staff, the president or CEO, or the treasurer or CFO.
If a finance committee exists, its members may serve on the audit committee, but they must not constitute 50% or more of it.
The committee recommends retention of the auditor and negotiates the fee, subject to board supervision. In other words, the audit committee is the buyer, not the executive director.
The compliance calendar for a June 30 fiscal year end
June 30 is a common nonprofit year end in California, particularly for organisations tied to the academic calendar.
| When | What |
|---|---|
| July to September | Year-end close, schedules and audit fieldwork. The quieter months, when finance teams have bandwidth. |
| ~15 November | Form 990 due. Also RRF-1 to the Attorney General's Registry of Charities, due four months and fifteen days after year end. |
| 31 March | Audited statements must be publicly available: nine months after year end, under §12586(e). |
Which is why preparation belongs in July and August, not October. See the full compliance calendar.
Related requirements
Single Audits
If you expend $1 million or more in federal awards, a Single Audit under Uniform Guidance is required on top of the financial statement audit. The threshold rose from $750,000.
Read moreCompilation vs review vs audit
Below the threshold, a review may be sufficient, and involves substantially less work.
Read moreCFO services for nonprofits
Functional expense allocation, reserve policy, grant compliance and board reporting between audits.
Read moreTake this with you
Work out whether your nonprofit actually needs an audit
California's audit trigger is not the number on Form 990 line 12, and the federal Single Audit trigger is a different number again. The worksheet walks both, with the citation beside each step.
- The California Nonprofit Integrity Act test, and what counts as gross revenue for it
- The Single Audit test at $1,000,000 of federal awards expended
- Where a grant agreement can require an audit no statute requires
- What to do if you cross the line part way through a year