Starting January 1, 2025, Illinois nonprofit organizations will need to comply with new audit requirements. SSL Associates, a Chicago-based CPA firm that offers audit services to clients nationwide, has provided this overview to help nonprofits understand and navigate these changes with ease.
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An Overview of the Changes
The Illinois General Assembly passed legislation modifying the audit requirements for charitable organizations. These amendments to the Solicitation for Charity Act aim to reduce administrative burdens on smaller nonprofits while maintaining financial accountability. The new rules took effect on January 1, 2025.
New Audit Thresholds
The legislation establishes two key thresholds for nonprofit financial reporting.
$500,000+ Annual Contributions
A full audit is required for charitable organizations receiving $500,000 or more in annual contributions. They must submit audited financial statements prepared by an independent certified public accountant. This represents an increase from the previous $300,000 threshold.
$300,000-$500,000 Annual Contributions
Organizations in this range now have the option to submit a reviewed financial statement instead of a full audit. An independent CPA must still conduct this review, but it is less comprehensive than an audit.
These thresholds apply to organizations with fundraising functions carried out solely by staff and volunteers.
It's crucial to understand what constitutes "contributions" under Illinois law. The term includes "the promise or grant of any money or property of any kind, including the promise to pay (i.e., pledges)". However, it excludes the sale of tickets by music and dramatic arts organizations for live public performances, union dues, and donated services.
Timeline and Implementation
As we mentioned, the new requirements took effect on January 1, 2025. They apply to annual reports with an initial due date (without extensions) after this date. The applicability of these changes may vary depending on an organization's fiscal year.
Reporting Requirements
Charitable organizations must file their annual financial report (AG-990-IL) with the Illinois Attorney General's office. The new audit or review requirements apply to these filings.
Exceptions and Special Cases
A charitable organization using the services of a paid professional fundraiser remains subject to different rules. For these entities, the audit threshold remains unchanged at $25,000 in annual contributions.
The Rationale for the Changes
The revised thresholds aim to address equity concerns and improve resource allocation in the nonprofit sector. The previous $300,000 audit threshold was among the lowest in the United States, placing a disproportionate burden on smaller organizations. Full audits can cost between $6,000 and $12,000, which represents a significant expense for smaller nonprofits.
Why These Changes Matter
These revisions represent a significant shift in Illinois' approach to nonprofit financial accountability. The state aims to balance oversight with operational flexibility for charitable organizations by raising the audit threshold and introducing a financial review option.
The changes allow nonprofits, particularly smaller ones, to allocate more resources to their missions while maintaining the financial transparency expected by donors and regulators. Understanding and adapting to these new rules is crucial for nonprofits to achieve ongoing compliance and effective operation.
How These New Requirements in Illinois Compare to National Standards
While the new Illinois thresholds align more closely with national trends, they remain conservative compared to many states:
- 18 states and the District of Columbia have no audit requirement.
- 30 states require reviews or audits starting at $500,000 or higher.
- Federal regulations require a "single audit" for grantees expending over $750,000 in federal funds annually.
- The Better Business Bureau Wise Giving Alliance recommends audits for organizations with annual contributions exceeding $1 million.
Some states periodically adjust their audit thresholds and some of them allow alternatives to full audits, such as IRS Form 990.
Financial Review vs. Full Audit
A financial review, now an option for organizations in the $300,000–$500,000 range, involves an examination of financial statements in accordance with generally accepted accounting principles. While less comprehensive than a full audit, it still provides a level of assurance to stakeholders.
A full audit, required for organizations receiving $500,000 or more in annual contributions, offers reasonable assurance about whether an organization's financial statements are free from material misstatement.
What Your Nonprofit Should Do Next
As these new requirements are now in effect, Illinois nonprofits must ensure they're in compliance.
Here are key steps to take:
- Assess your organization's annual contributions to determine which category you fall into.
- Review your fiscal year-end and corresponding reporting deadlines.
- If you're in the $300,000–$500,000 range, decide whether to opt for a financial review or continue with a full audit.
- Update your financial reporting processes to align with the new requirements.
- Seek professional guidance to ensure full compliance with Illinois and government agencies’ standards.
Don't Navigate These Changes Alone — Get Expert Help!
Uncertain about how these new rules affect your nonprofit? Schedule a consultation with SSL Associates today.
SSL Associates: Your Partner in Nonprofit Financial Compliance
As nonprofits adapt to these new requirements, professional guidance can be valuable. SSL Associates specializes in nonprofit accounting and auditing services, including full audits, financial reviews, and consultations on compliance with the new regulations. Our team of independent certified public accountants ensures financial statements meet all necessary standards and comply with generally accepted accounting principles. Contact our team today to get started on your path to financial transparency.
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