New Michigan law eases audit burden on nonprofits

January 27, 2009
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In a measure aimed at cutting costs for nonprofits strapped in the struggling economy, a new Michigan law raises the limit for which organizations must submit audits to the Attorney General’s office.

Gov. Jennifer Granholm this month signed the law that Michigan Nonprofit Association President & CEO Kyle Caldwell said should save money for some nonprofits.

“The new regulations that have come out for audit standards in general … have really increased the workload for nonprofits and the accounting organizations they work with,” Caldwell said.

He said auditing costs for nonprofits have increased 10 percent to 30 percent as they attempt to comply.

“Nonprofits operate on a pretty slim margin to begin with,” Caldwell said. “The increased costs made it difficult for nonprofits to concentrate on solving problems.”

The law is enforced through the annual license to solicit donations, which is distributed by the state Attorney General’s office.

Previously, a nonprofit that reported to the Internal Revenue Service that it raised $250,000 in contributions during the previous tax year was required to submit an audit along with the annual application for permission to solicit for donations. The new law raises that ceiling to $500,000.

Also part of the law, nonprofits that gather $250,000 in annual contributions must submit an accounting firm’s financial review with the solicitation application to the Attorney General. Previously, the threshold was $100,000.

As nonprofits cope with increased demand for services and diminishing resources, few relish the idea of spending more on administrative costs such as accounting, Caldwell said.

“These numbers had not been changed in over a decade,” Caldwell said. “Times have changed, the cost of doing business has changed, the value of a dollar has changed. The hours spent on an audit have increased, and CPAs are charging more for the burden of that increase labor cost.”

He cautioned that many organizations receive grants or other types of funding that require the submission of an audit, so the new law may be a moot point for them anyway.

Still, said Peggy Bishop, partner-in-charge of the nonprofit industry section at Beene Garter’s Grand Rapids office, the change in the law should provide some relief.

“It’s a huge break for smaller nonprofit organizations. That may have been the only audit requirement they had,” Bishop said. “There are thousand of organizations out there that may no longer have to have an audit.”

Also in the law is a provision to automatically raise the thresholds by $25,000 every five years, starting in 2015.

Caldwell said the bill moved through the Legislature with relative ease.

“People understood that easing the burden on nonprofits while maintaining levels of accountability was a real focus of this bill,” he said.

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