Governor Wolf signed Act 71 into law last December and it became effective in early 2018. Act 71 increased the annual contribution levels at which a nonprofit must undergo an audit, review, or compilation engagement. The new contribution thresholds are as below:
- Annual Contributions of $750,00 and above: Audit required
- Annual Contributions between $250,000 and $750,000: Review required (audit optional)
- Annual Contributions between $100,000 and $250,000: Compilation required (review or audit optional)
- Annual Contributions below $100,000: Audit, review or compilation optional
Now, you may be asking yourself, what are the criteria for what actually defines contributions related to the thresholds above? In Pennsylvania, annual gross contributions are defined as federated campaign contributions, membership dues (contribution portion only), all income from fundraising and gaming events, contributions from related organizations and general contributions.
While it may be more cost effective for your organization to switch from an audit to an engagement less in scope such as a review or compilation, it is also important to consider the user of your financial statements. I currently serve as Treasurer of a non-profit organization in West Chester, PA and we just recently discussed this topic at our last finance committee meeting. Even though we fall below the threshold for what would require an audit, we decided to stick with one as we assessed the cost benefits of being able to apply for certain grants and additionally, peace of mind that our books were being looked at and carefully examined by an independent party. In addition, we realized that we were near the threshold; it would be a pain to switch back and forth between the different types of engagements.
At Stephano Slack, we have clients that do not meet the threshold for an audit but still prefer to have one done as it is the option they have always chosen, and helps them to secure additional funding from certain foundations. If this sounds like something you’re thinking about regularly, no need to worry! All non-profits in Pennsylvania need to evaluate their needs for an audit after these new contribution thresholds were put into place. And just a friendly reminder, requirements vary by state, so be sure to check before enacting new policies surrounding your financial statements.
Here at Stephano Slack, we work on compilations, reviews, audits and Form 990 preparation for non-profits of all sizes. Feel free to contact me or any of our accounting professionals for questions on what threshold your non-profit may fall into and whether one type of engagement may make more sense over the others!