Pennsylvania Eases Audit Thresholds and Other Nonprofit Requirements

Meeting state requirements is about to get a little easier for nonprofits operating in Pennsylvania, thanks to two measures recently approved by Governor Tom Wolf. Acts 71 and 72 of 2017, signed into law December 22, relax fundraising and financial reporting requirements, particularly for smaller nonprofits.

Act 72 clarifies that state fundraising registration forms will be considered timely if they are postmarked by the due date. Registrations were formerly considered timely only if the Department of State’s Bureau of Corporations and Charitable Organizations (BOC) received them by the due date, which led to a lot of infractions and late fees for nonprofits filing close to the deadline. Act 72 also directs the BOC to review registration renewals within a standard 15-day review period.

Act 71 eases audit requirements for nonprofits, raising the threshold of annual contributions that require an audit by a certified public accountant (CPA) from $300,000 to $750,000. The new threshold aligns with federal limits and moves Pennsylvania from its position as one of the most stringent states in the nation to one of the most lenient.

The new Pennsylvania thresholds are:

• Annual contributions over $750,000: Audit required.
• Annual contributions between $250,000 and $750,000: Review or audit required.
• Annual contributions between $100,000 and $250,000: Compilation, review, or audit required.
• Annual contributions up to $100,000: Compilation, review, or audit optional.

Pennsylvania defines annual gross contributions as the sum of a nonprofit’s federated campaign contributions, membership dues, income from fundraising and gaming events, contributions from related organizations, and general contributions.

While the change may come as welcome news for many smaller nonprofits, these thresholds are not the only factors that influence what type of financial statements an individual nonprofit should prepare. “If foundations or other funders have required an audit, that requirement may not change,” said Ify Aduba, nonprofit partnership manager for Harbor Compliance. “Major donors, board members, financial institutions, and others may desire audited financial reports.” The Pennsylvania Association of Nonprofit Organizations currently recommends that nonprofits with annual revenues of more than $500,000 be audited by a CPA.

A nonprofit’s fundraising footprint is also a factor. “Nonprofits that are registered for fundraising nationwide, or in multiple states, should plan to meet the most stringent requirement within their territory,” Ify said. “If nonprofits are required by another state registration to have an audit, it’s likely they will still need it.” The threshold in Illinois, for example, remains at $300,000.

Nonprofits will also need to consider timing as they evaluate their options under the new laws, which take effect February 20, 2018. “Nonprofits that are mid-audit may want to continue to move forward since the process has started,” Ify said. “Or, if an organization is under the $750K threshold, but expects to grow to that level in a year or two, they may choose to continue with audits rather than have a one- or two-year gap.”

Less paperwork, a little more time to file—these are welcome measures for a lot of nonprofits. But whenever taxes and state registrations are involved, it pays to do due diligence. “Nonprofits may need to have a few conversations before putting plans in place to determine how the changes apply to their particular situation,” Ify said.

If you have any questions about fundraising registration or other state requirements, feel free to get in touch or give us a call at 1-888-595-5895.

Ifeoma (Ify) Aduba brings more than 20 years of experience in nonprofit leadership to her position as nonprofit partnership manager with Harbor Compliance. She currently serves as president of the board of the Pennsylvania Association of Nonprofit Organizations (PANO), board member of the Bucks County Women’s Advocacy Coalition, and president of the administrative ministries team at Doylestown United Methodist Church (DUMC). Ify holds a B.A. in politics from Mount Holyoke College and a master’s degree in nonprofit management from Eastern University.