Does Your California Regional Center Business Need a CPA Review or Audit?

California Regional Center service providers may be required to obtain reviewed or audited financial statements depending on the amount they receive from one or more Regional Centers. Understanding the applicable threshold can help a provider avoid last-minute reporting problems and prepare its accounting records before the deadline.

What Are the Regional Center Review and Audit Thresholds?

California Welfare and Institutions Code Section 4652.5 establishes financial statement reporting requirements for qualifying Regional Center service providers.

Generally:

• $500,000 to less than $2 million in Regional Center payments: The provider must obtain an independent review report of its financial statements.

• $2 million or more in Regional Center payments: The provider must obtain an independent audit of its financial statements.

The threshold is based on payments received from one or more California Regional Centers—not necessarily the provider’s total revenue from every source.

For example, a provider could have total annual revenue exceeding $2 million but receive only $900,000 from Regional Centers. Subject to the remaining provisions of the law, that provider would generally fall within the independent-review threshold rather than the audit threshold.

What Is a Financial Statement Review?

A financial statement review is performed by an independent CPA and provides limited assurance that no material modifications are needed for the financial statements to conform with the applicable financial-reporting framework.

A review is narrower in scope than an audit. It primarily involves analytical procedures, inquiries, preparation or evaluation of financial statements and disclosures, and other procedures required under professional standards.

Although a review is less extensive than an audit, the company’s accounting records still need to be complete and properly organized. The CPA must also remain independent of the provider.

What Is an Audit?

An audit provides a higher level of assurance and requires substantially more work. Audit procedures may include testing transactions, confirming balances with outside parties, evaluating internal controls, examining supporting documentation, and performing other procedures considered necessary by the auditor.

Providers approaching the $2 million threshold should monitor their combined Regional Center payments carefully. Waiting until year-end to determine that an audit is required can lead to higher costs and significant reporting delays.

When Is the Report Due?

A provider subject to these requirements generally must give the independent review or audit report, along with any accompanying management letter, to the vendoring Regional Center within nine months after the end of the provider’s fiscal year.

Because preparing GAAP financial statements and correcting accounting issues can take time, providers should contact a CPA well before that deadline.

Can a Provider Receive an Exemption?

Section 4652.5 contains provisions allowing certain providers to request an exemption following a qualifying prior-year review or audit. An exemption should not be assumed automatically. Providers should contact their Vendoring Regional Center to determine whether they qualify and obtain the appropriate approval.

How Can a Provider Prepare?

Before beginning a review, a provider should generally have the following available:

• A finalized trial balance and general ledge

• Bank statements and completed bank reconciliations

• Accounts-receivable and accounts-payable records

• Payroll reports

• Fixed-asset and depreciation schedules

• Debt and lease agreements

• Regional Center payment records

• Supporting documentation for significant or unusual transactions

• Prior-year financial statements, if applicable

Addressing missing reconciliations, unsupported balances, and incomplete schedules before the engagement begins can reduce delays and additional costs.

CPA Review and Audit-Preparation Assistance

Streamlined Reviews works with California businesses that need reviewed financial statements prepared in accordance with applicable professional standards. We can also help companies organize their accounting records and prepare for an audit when an independent audit is required.

Mark Deazeley, CPA, has more than 20 years of accounting and assurance experience and is licensed in California.

If your organization receives payments from a California Regional Center and you are uncertain whether you need a review or an audit, contact Streamlined Reviews to discuss your reporting requirements and request a fixed-fee proposal.

This article provides general information and is not legal advice. Providers should confirm their specific reporting obligations and any available exemptions with their Vendoring Regional Center.