Nonprofit organizations in Maryland taking in less than $750,000 a year may get some financial relief if a bill in the General Assembly that proposes to increase the amount of charitable income that is required for an audit becomes law.
The required income level is currently $500,000. The proposed level would be $750,000, a change favored by nonprofits.
Nonprofits generating less than $500,000 would not need to submit a full audit to the Maryland Secretary of State’s Office, but they would need to submit a review by a certified public accountant.
The bill is sponsored by Sen. Bryan Simonaire (R-District 31) and was unanimously given a favorable rating Jan. 28 by a bipartisan committee. Simonaire’s spokeswoman, Kara Contino, said this means it will then go to the Senate floor for debate.
If approved, the bill would be in keeping with federal audit requirements which mandate that a nonprofit expending more than $750,000 in a fiscal year after Dec. 26, 2014 requires a single audit. She said that Simonaire’s push for the bill was a matter of maintaining consistency with these standards.
“He [Simonaire] told me that there were nonprofits in support of raising federal regulations,” she said while adding that the secretary of state also supported the bill.
The bill, which would take effect July 1 if passed, aims to reduce the operating costs for smaller nonprofits around the state.
Henry Bogdan, public policy director for the Maryland Association of Nonprofits, said he anticipates this would save between $10,000 and $20,000 for the affected groups.
“It really doesn’t matter how big an organization is, it’s really a matter of what seems to be a reasonable cost of doing this,” he said. “It’s just trying to recognize that these things have become costly, and below certain levels it probably does not make a lot of economic sense to require [an audit].”
Bogdan said the cost of performing an independent audit has “exploded” in the last decade. The issue of altering the standards for a required audit came up at a workgroup last year that included representatives from the secretary of state and attorney general’s offices.
“The cost of doing that for an accounting firm gets to a point where it’s not effective for an organization if you have to spend $10,000 to $15,000 for an audit,” he said.
Ron Halber, executive director of the Jewish Community Relations Council of Greater Washington, said he has consulted with his legislative task force and the organization would likely support the legislation.
”For many smaller nonprofits, an audit can be an extraordinarily extensive process and could prohibit the use of funds on other items,” he said. “Certainly we believe in emerging nonprofits and allowing them to spend more money on operations.”
Halber said for smaller nonprofits, vital partners will be able to put more money toward the organization’s mission. He added that Jewish nonprofits either have incomes in the millions — which would necessitate an audit in any case — or very small incomes, in which case an audit would be a burden. However under Maryland law, religious organizations are exempted from registering with the secretary of state’s office if they solicit strictly for educational or religious purposes.
Andy Stern, who chairs the board of the Montgomery County incubator Nonprofit Village, said $300,000 spent on an audit takes “a big chunk out of the budget” and hurts the ability of an organization to provide services. The costs of a CPA performing a review at tax season is much lower than a full audit, he said.
“An accounting firm coming in to review a nonprofit should be fine for nonprofits because full-blown audits are really expensive,” he said. “You can just have someone do your taxes and they do all your forms and everything you have to do.”
Paula Rothenberg, CEO of Hope Connections for Cancer Support in Bethesda, said her organization has a budget of $775,000 and performs an audit each year without difficulty. But Rothenberg said she spent 18 years consulting with nonprofits and observed a number of smaller organizations struggling to get by with the $500,000 income level.
“For many of the smaller ones, the audit was a financial burden,” she said.
