Understanding California’s Nonprofit Integrity Act & Audit Committee Requirements
- BryMar Crew
- Aug 12
- 3 min read
Why the Nonprofit Integrity Act Matters
History and Purpose. In 2004, California passed the Nonprofit Integrity Act (SB 1262) to raise the bar on accountability in the charitable sector. High-profile scandals at the time had shaken donor confidence, and lawmakers responded by creating stronger rules around financial transparency, audits, and fundraising.
The Act’s goal is simple: to make sure charitable dollars are managed responsibly and that the public can trust nonprofit organizations to use funds as intended.
For nonprofit leaders, this law is more than compliance—it’s a credibility safeguard.
If your nonprofit has annual gross revenue above $2 million, the law requires both:
An independent financial statement audit performed by a licensed CPA in California
An independent audit committee to oversee that audit and report findings to the board
Understanding these requirements is critical not only for staying compliant, but also for maintaining eligibility for major grants, state contracts, and donor trust.
Key Provisions of the Act
While the Act covers a range of governance and fundraising issues, the most relevant provisions for executive directors of $2M+ nonprofits are:
1. Independent Audits
Nonprofits with $2M+ in gross revenue must undergo an annual independent audit.
The audit ensures financial statements fairly present the nonprofit’s activities and position.
2. Audit Committee Requirement
The Act requires a separate audit committee, distinct from the finance committee.
The committee must recommend the hiring and termination of the auditor, review the scope and results of the audit, and report findings directly to the board.
3. Fundraising Oversight
Charities working with professional fundraisers must have written contracts filed with the Attorney General.
Fundraising solicitations must be accurate and consistent with reported financial practices.
4. Board Accountability
The board remains ultimately responsible for ensuring compliance.
Audit committee reports must be presented to the full board to ensure transparency.
Why the Audit Committee Requirement Catches Leaders Off Guard
One of the most common questions we hear is: “Do we really need an audit committee?”
The answer is yes—for nonprofits above the $2M threshold, it’s not optional. Many organizations mistakenly believe the finance committee can double as the audit committee. Under the Act, that’s noncompliant. Why? Because the audit committee’s independence is what ensures your board receives unbiased oversight of financial reporting.
A properly functioning audit committee:
Protects your nonprofit’s credibility
Helps avoid last-minute audit delays
Gives funders and donors confidence in your governance
👉 Read Our Blog Post: Audit Committee Requirements for Nonprofits in California: What Every Executive Director Needs to Know
What This Means for Executive Directors
For executive directors, the Nonprofit Integrity Act adds structure, but it also gives you leverage. With an independent audit and audit committee in place, you can confidently:
Assure funders and donors that your finances are transparent and accountable
Demonstrate to your board that governance standards are being upheld
Keep eligibility for critical state funding and grant programs
Instead of seeing the Act as one more compliance hurdle, think of it as a framework that protects your nonprofit’s reputation and makes your leadership role easier.
How BryMar CPA Helps
At BryMar CPA, we work mainly with nonprofits over the $2M threshold—organizations directly impacted by the Nonprofit Integrity Act.
Our focus is on:
Financial statement audits that meet California’s requirements
Audit preparation so, your team is ready before the audit begins
We concentrate on what matters most—helping your nonprofit complete the audit cycle smoothly and on time.
Next Steps for Your Nonprofit
If your nonprofit has crossed the $2M threshold and hasn’t yet established an audit committee—or if you’re approaching your first required audit—it’s time to act.
👉 Let’s Talk: Contact BryMar CPA today to prepare your financial statements and complete your required audit with confidence. We help nonprofits over $2M stay compliant with the Nonprofit Integrity Act while keeping the audit process simple and stress-free.
