Hartford Business Journal

30 HARTFORDBUSINESS.COM | JULY 10, 2023 Nonprofits could benefit from new law establishing higher threshold for audits By Mary Kay Curtiss F or many years, nonprofit orga- nizations in Connecticut have been required to have audits conducted if their annual gross reve- nues were greater than $500,000. This relatively low threshold often placed a financial burden on nonprofits, considering the cost of an audit can start as high as $10,000. Many organizations have sought to have the threshold increased to help alleviate some of the administrative and finan- cial burdens audits can create. However, for nonprofits whose gross revenues hover near the $500,000 mark, it seems there could be some good news coming their way. The Connecticut General Assembly recently approved a bill raising the audit threshold of annual gross reve- nues exceeding $500,000 to annual gross revenues exceeding $1 million. If signed into law, this could mean a significant regulatory change for some nonprofits. And while it will likely come as a welcome new development, orga- nizations will still need to keep a keen eye on how their finances are managed — and have a complete understanding of their particular funding sources, any compliance requirements associated with those funds, and the controls in place around them. New threshold doesn't necessarily mean no audit Even if a nonprofit falls below this new threshold, it may still be required to have an audit if it receives considerable state or federal financial support. Organizations that expend $300,000 or more in Connecticut state grants, or $750,000 or more in federal grants, may be required to undergo a compliance audit, which accompanies a financial statement audit — collectively, also referred to as a single audit — even if its annual revenue does not exceed $1 million. Because state and federal grants must be used for designated programs and services, single audits are required to ensure an organiza- tion is compliant with grant require- ments and that funds are being properly used. Management and governing bodies should also consider that certain corporate and foundation donors that give substantial donations to nonprofits may require the books be audited by an independent auditor. These funding sources may look for the audit to evaluate proper and effective use of the contributed funds, or as an independent assessment of the organization's financial reporting process and overall financial health. If this is the case, an audit will need to be performed regardless of the gross revenues. Oversight can be an advan- tage for fundraising Regardless of the regulatory changes, management and the governing body of a nonprofit may still want a formal report on the orga- nization's financial performance as a matter of oversight. There are options for organizations that do not meet the Connecticut state audit or government single audit requirements. In addition to obtaining an audit, organizations can also engage an independent firm to perform a review of their books and records, likely at a lower cost than a full audit. A review is less rigorous and provides limited assurance, without opining on the fair presentation of the financial statements, as they would in a full audit. It is important to note that oversight is still essential for all nonprofits, but especially for smaller organizations that remain susceptible to finan- cial issues, particularly in today's economic climate. Smaller nonprofits are increasingly struggling to find private corporate donors. Since the COVID pandemic, there has been a trend in "prioritized giving" among some large corporate and individual donors, and tighter budgets have caused some to make such giving less of a priority moving forward. With many nonprofits vying for the same shrinking pool of philanthropic dollars, the ones with effective financial controls in place could make themselves more attractive to legacy or even new donors. Regardless of the threshold spelled out by the new law, this is really about oversight: making sure controls are in place and technology systems are adequate and appropriate for the organization to operate efficiently and effectively, and help generate timely and accurate financial reports for meaningful decision-making. Combined, these systems could provide answers to key questions: Is the organization prepared for anticipated growth? Does it need to consider rightsizing its programs? Could lack of a formal audit give some funders pause? Nonprofits should be on top of questions like these when renewing existing funding agreements or seeking new ones. Mary Kay Curtiss is a principal at accounting and consulting firm CLA in West Hartford. Mary Kay Curtiss ensure a seamless transition for staff and clients." Turgeon said The Village has grown substantially since Rodriguez became CEO in 2006. Rodriguez has expanded the agency's programs, strengthened its finances and increased its reach to more than 60 towns and cities, and 20,000 clients. Under Rodriguez's leadership, The Village also added adult program- ming, including outpatient counseling, financial literacy training and support for domestic violence survivors. In fiscal year 2022, The Village reported $45.3 million in program funding vs. $45.1 million in program expenses. Donors contributed $2.6 million to the nonprofit in fiscal 2022 — the most in 20 years, according to the organization. The Village employs roughly 550 staff members at more than 30 sites, and is one of the state's largest providers of mental health services for children and families. New Hartford service Meantime, the Village this month plans to open Hartford's first urgent crisis center for children experiencing mental health emergencies. The tentative opening is set for July 10. The facility is located at 1680 Albany Ave., in a building that previously housed The Village's administrative offices. The nonprofit recently moved its administrative headquarters to downtown Hartford, at 450 Church St. It bought the three-story, 32,000-square-foot office building in 2021 for $1.6 million. The Albany Avenue mental health crisis center will be akin to an ER for kids experiencing a mental crisis. "A child may be thinking that they're going to die, that they won't be able to breathe," Rodriguez said. "There is no need to go to the emergency room in a situation like that. … People will go (to The Village's new facility) and they will be assessed immediately. The staff will deescalate the event, the attack, and they will give a follow-up. It could be medications. It could be therapy. It could be sending them to the outpatient clinic." Rodriguez said it's a better option than taking a child to a hospital ER, where the wait to receive treat- ment could take hours, or even days if the child is admitted for an in-patient evaluation. At The Village's urgent crisis center, patients will see a clinician immedi- ately, he said. The center will be staffed 24/7, including on holidays and weekends. People can call beforehand, or show up unannounced. Rodriguez said patients may be discharged in as little as two hours, saving time and the additional cost brought on by a hospital visit. The Village's urgent crisis center commits to discharging patients within 24 hours of their arrival, he said. All forms of insurance are accepted. The nation's mental health crisis has had a profound effect on children. Nearly 20% of children between ages 3 and 17 have a mental, emotional, developmental or behavioral disorder, according to the National Institute of Health's National Healthcare Quality and Disparities Report. These trends were exacerbated during the COVID-19 pandemic, according to the report. The Village's crisis center comprises 6,000 square feet of newly renovated space. Funding for the project came from a $120 million allocation by the state legislature for children's mental health services and the Department of Children and Families. EXPERT'S CORNER THE VILLAGE'S FISCAL 2022 PROGRAM EXPENSES Program Expense Community services $13.2M Outpatient behavioral health services $11.3M Residential services and extended day treatment programs $10.6M General & administrative $5.3M Permanency (foster care and adoption) $4.2M Fundraising $562,000 TOTAL $45.1M Source: FY 2022 Annual Report FOCUS: NONPROFITS

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