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When submitting annual charitable registration filings, nonprofits must include both
their most recent Form 990 and financial statements. In 22 states, an independent CPA must
review or audit the statements once the organization reaches the statutory income threshold.
Two states, North Carolina and Virginia, do not require audited financial statements, but they
will accept audits in lieu of Form 990.
Financial statements are necessary for an organization's ongoing ability to solicit. Additionally,
by having the proper statements prepared, organizations (and their leadership) demonstrate their
duty of care and help foster a sector of transparency and trust.
Nonprofits should be prepared to meet the requirements of every state where they register to
solicit. CPAs play a valuable role, advising organizations and preparing the annual financial
statements needed to comply across jurisdictions. Harbor Compliance works closely with nonprofits
and their CPAs to ensure registrations are
seamlessly filed and approved.
You can view our helpful table
of state-specific charitable audit and financial statement requirements. Because these
requirements vary greatly and often change, we encourage nonprofits, CPAs, and auditors to
bookmark this page.
Before we dive in, organizations should become familiar with a few key concepts.
Annual Contributions
This is the organization’s income resulting from individuals, foundations, and corporate
contributors. Many states exclude government grants from their financial statement thresholds.
Contributions are reported on:
A report by an independent auditor, attesting to the fairness of presentation of the
financial statements and related disclosures. In most states, audited financial statements
must be prepared in accordance with Generally Accepted Accounting Principles (GAAP).
Reviewed Financial Statements
A more limited report made by an independent auditor. The report verifies that there are no
material modifications needed for an entity’s financial statements to be in conformity with
the application reporting framework. In most states, reviewed financial statements must be
prepared in accordance with GAAP.
Compiled Financial Statements
An organization’s financial statements prepared by an accountant or CPA, but which do not
have the assurances provided within reviewed or audited financial statements.
Internal Financial Statements
Financial reports from the organization’s own internal financial software or records. These
usually consist of a Statement of Financial Position (Balance Sheet) and a Statement of
Activities (Income Statement or Profit & Loss).
What Type of
Financial Statements Are Required When Registering to Solicit?
Organizations that register in one or more states should expect to submit financial statements
that meet the requirements of each. Regardless of the type (audited, reviewed, compiled, or internal),
financial statements must be prepared for the same tax year as reported on Form 990.
Most states base their thresholds on either the Annual Contributions or the Total Revenue
reported on the organization’s annual
IRS Form 990 return.
Florida and Illinois also generally consider program service revenue in addition to contributions.
State financial statement thresholds are not based on either of the following:
Contributions or income from an individual state.
The number of transactions in a particular year.
For example, a new organization receiving a significant contribution from a single donor may
still be required to submit audited or reviewed financial statements if the total exceeds the
state threshold.
An organization may need a different type of financial statement each year, depending on its
annual income and the states where it intends to register. For example, in one year, the group
may be able to submit internal financial statements. Following a significant uptick in contributions
or overall growth, it may need to submit reviewed or even audited financial statements.
In all cases, proactive planning helps the organization budget for the cost of assurance
work and avoids delays in state registrations.
Waivers From State Financial Statement
Requirements
Nonprofits frequently inquire whether a state will waive its requirement for audited or reviewed
financial statements. This commonly occurs with organizations seeking to register for the first
time, but it may also happen as the organization’s annual income passes the threshold required
for renewal.
Because financial statement requirements are set by statute, waiver requests are highly conditional,
if not outright impermissible.
Registering organizations should not count on a waiver across states and certainly not for
multiple years. While an individual state may waive a requirement for extenuating reasons, some
states, like New Jersey, do not issue a waiver under any circumstances. And notably, no state
will waive the requirement due to the cost of a CPA or auditor engagement.
Instead, organizations should be aware of and, with their CPA, annually plan to meet statutory
financial statement requirements before submitting registration materials.
Table: Charitable
Registration Audit and Financial Statement Requirements by State
Below is a table of the current financial statement requirements and thresholds for each state.
Disclaimer: These requirements pertain specifically to
the act of filing charitable solicitation registration materials. Nonprofits may be required to
obtain audited financial statements for other operating purposes and funding conditions.
Organizations are encouraged to speak with a CPA or auditor for guidance on their specific
requirements.
Government grants do not count as gross revenue in this instance. California also requires charities with greater than $2 million in revenue to establish an audit committee.
All financial statements be complete and in final form (drafts are not acceptable), unbound, and with an opinion letter signed by the CPA. The Division does not accept compilations.
The following organizations are exempt from the audit/review requirement:
Private foundations that file 990PF with the IRS
Trusts filing probate accounts with the Division
Certain trusts audited by state and federal agencies
Organizations with total revenues of $500,000 to $2,000,000 must submit a GAAP financial statement prepared by the organization in-house or prepared by an accountant and reviewed and approved by the organization.
Only New Hampshire-based charitable trusts are subject to the financial statement/audit requirement. Private foundations are also exempt from this requirement.
Non-monetary donations in the form of in-kind contributions directly related to any stated purpose or mission of the charitable organization, including food for food pantries or food banks, supplies for shelters, and such other forms of in-kind contributions as may be permitted by the Attorney General, shall not constitute gross revenue with respect to the requirement of an annual financial report with a financial statement audited by an independent certified public accountant.
Required for CHAR500 renewal filings only. If the organization is registered under 7A and raised less than $25,000 in NYS during a particular tax year, it may not be required to file financial statements of any kind.
Most charitable organizations, with the exception of some veterans and public safety organizations, are exempt from the requirement to register with the State.
Organizations are asked to submit financial statements only if they have not filed an IRS Form 990. In such cases audited financials must be included if any have been prepared.
Washington does not require submission of audited financials with registration or renewal, but audited financials must be made available in paper form to the public upon request or accessible to the public on the internet.
Organizations with between $1M and $3M in total revenue averaged over the previous 3 years must make either their IRS Form 990 or audited financials available in paper form to the public upon request or accessible to the public on the internet.
Filing fees depend on your individual situation. We do our best to calculate your filing fees
upfront and collect those fees today so we can get started. Your specialist will determine your
exact filing fees and invoice additional fees if required.
