(a)  Annually, there shall be a single independent financial and compliance audit of nonprofit organizations that contract with the state under a direct service contract. Any such audit shall include an evaluation of the accounting and control systems of the direct service contractor and of the activities by the contractor to comply with the financial requirements of direct service contracts received by the contractor from the state agency. Audits carried out pursuant to this section shall be audits of the contractor, rather than audits of individual contracts or programs. In the case of any contractor that receives less than twenty-five thousand dollars ($25,000) per year from any state agency, the audit required by this section shall be conducted biennially, unless there is evidence of fraud or other violation of state law in connection with the direct service contract. The cost of such audit may be included in direct service contracts up to the proportionate amount that the contract represents of the contractor’s total revenue.

(b)  A nonprofit organization shall have responsibility for financial and compliance audits of the nonprofit organization and any subcontractors. The audits shall be made by independent auditors in accordance with generally accepted auditing standards. The audit shall be completed by the 15th day of the fifth month following the end of the contractor’s fiscal year.

Terms Used In California Health and Safety Code 38041

  • Contract: A legal written agreement that becomes binding when signed.
  • Direct service contract: means any contract provided by a state agency pursuant to Chapter 4 (commencing with Section 38030). See California Health and Safety Code 38040
  • Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
  • Financial and compliance audit: means a systematic review or appraisal to determine each of the following:

    California Health and Safety Code 38040

  • Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
  • Fraud: Intentional deception resulting in injury to another.
  • Generally accepted auditing standards: means the auditing standards set forth in the financial and compliance element of the "Standards for Audit of Governmental Organizations, Programs, Activities, and Functions" issued by the Comptroller General of the United States and incorporating the audit standards of the American Institute of Certified Public Accountants. See California Health and Safety Code 38040
  • Independent auditors: means public accountants who have no direct or indirect relationship with the functions or activities being audited or with the business conducted by any of the officials or contractors being audited. See California Health and Safety Code 38040
  • Nonprofit organization: means an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986 that is exempt from taxation under Section 501(a) of that code or any nonprofit, scientific or educational organization qualified under Section 23701d of the Revenue and Taxation Code. See California Health and Safety Code 38040
  • State: means the State of California, unless applied to the different parts of the United States. See California Health and Safety Code 23

(c)  (1)  Nothing in this chapter limits the authority of state agencies to make audits of direct service contracts; provided, however, that if independent audits arranged for by direct service contractors meet generally accepted auditing standards state agencies shall rely on those audits and any additional audit work shall build upon the work already done.

(2)  The state is responsible for conducting, or contracting for the conduct of, contract performance audits which are not financial and compliance audits.

(3)  Nothing in this chapter limits the state’s responsibility or authority to enforce state law or regulations, procedures, or reporting requirements arising pursuant thereto.

(Added by Stats. 1982, Ch. 1462, Sec. 3.)

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