Your Audit Now Affects Your 10% Quality Incentive Rate
Under AB 143 (2025), beginning in fiscal year 2026-27, staying current with your WIC §4652.5 audit or review is a condition of eligibility for the Quality Incentive Program (QIP) — alongside electronic visit verification and home- and community-based services requirements.
That matters because of how you are paid. Under Rate Reform, your full rate is made up of a 90% base rate plus a 10% quality incentive. If you fall out of compliance with your audit or review requirement, you don't just risk the long-standing "Do Not Refer" consequence — you can put that 10% of your reimbursement at risk.
In short: a missed Regional Center audit is no longer just a paperwork problem. It can directly reduce the rate you are paid on every authorization. If you have questions about where you stand, call (415) 916-7010.
Read our full guide to AB 143 and the 10% Quality Incentive →
What Is WIC §4652.5?
Welfare and Institutions Code §4652.5 is the California law that governs financial reporting requirements for vendors contracted with Regional Centers — the 21 state-funded agencies that coordinate services for individuals with developmental disabilities under the Lanterman Developmental Disabilities Services Act.
The law requires that any vendor receiving $500,000 or more in annual Regional Center funding must engage an independent Certified Public Accountant to perform either a review or an audit of their financial statements, depending on the funding amount received.
The resulting report — along with the CPA's management letter — must be submitted to the Regional Center within a specific timeframe. The Regional Center then forwards the report to the California Department of Developmental Services (DDS) for review.
Who does this apply to? Any nonprofit, for-profit, or government entity that has a vendorization agreement with one or more of California's 21 Regional Centers and receives $500,000 or more in aggregate Regional Center funding during the State fiscal year (July 1 – June 30).
Review or Audit — Which Do You Need?
- Assurance level
- Limited assurance (negative assurance opinion)
- Primary procedures
- Analytical procedures, inquiries of management, variance analysis
- Report deliverable
- Review report + management letter forwarded to Regional Center within 30 days
- Typical timeline
- 2–4 weeks from receipt of complete records
- Estimated fee
- $7,000 – $15,000
- Assurance level
- Reasonable assurance (positive opinion)
- Primary procedures
- Transaction testing, confirmations, internal control evaluation, compliance testing
- Report deliverable
- Audit report + management letter + 85/15 schedule
- Typical timeline
- 4–6 weeks from receipt of complete records
- Estimated fee
- $20,000 – $30,000
Do the Thresholds Apply to You? Key Exclusions
Not every dollar counts toward the $500,000 / $2,000,000 thresholds, and not every entity is covered:
- Usual and customary rates are excluded. Payments made at usual and customary rates (as defined in Title 17) do not count toward the threshold.
- Government entities are exempt. State and local government agencies, the University of California, and the California State University are not subject to the requirement.
- Work activity programs. Work activity program providers may need a review even when they receive under $500,000, per Title 17.
Because the threshold is measured on the State fiscal year (July 1–June 30) while your report covers your own fiscal year, it's easy to misjudge whether you cross the line. If you're unsure, call (415) 916-7010.
What an Independent Review Must Cover
A review is more than a quick look at your books. WIC §4652.5 sets out, at a minimum, what an independent review must include:
- An inquiry into your accounting principles, practices, and the methods used to apply them
- An inquiry into your procedures for recording, classifying, and summarizing transactions
- Analytical procedures designed to identify relationships or items that appear unusual
- An inquiry about budgetary actions taken at board (or comparable) meetings
- An inquiry about conformity with generally accepted accounting principles (GAAP) and any subsequent events that would materially affect the statements
- Working papers documenting the items covered and any unusual items and their disposition
The review report itself must also certify that the review was performed under AICPA standards, that the statements are management's representations, that the review is narrower in scope than an audit, and that the accountant is not aware of any material modifications needed for the statements to conform with GAAP.
The 85/15 Rule
As part of compliance, vendors must demonstrate that they are using Regional Center funds appropriately. California regulations require that vendors spend at least 85% of Regional Center funds on direct program services — the actual delivery of services to consumers. No more than 15% may be spent on administration, management, and overhead.
This is one of the most commonly misunderstood and misapplied requirements. The classification of expenses — whether a given cost is "program" or "administrative" — is not always intuitive, and different CPA firms classify the same expenses differently.
Common Classification Errors We See
❌ Wrong
Direct service staff supervision coded as administrative
✓ Should be program when the supervisor provides direct support
❌ Wrong
Rent for client program space coded as administrative
✓ Space used for service delivery is a program cost
❌ Wrong
Mileage for direct service transport coded as G&A
✓ Client transportation is a direct program expense
❌ Wrong
Training costs for program staff coded as administrative
✓ Role-specific training for direct service staff is program
If you are not spending 85% on program services, your CPA must disclose this in the management letter. The Regional Center may then require a corrective action plan. Repeated failures can affect your vendorization status.
Reporting Deadlines
WIC §4652.5 sets clear deadlines. Missing them creates risk — Regional Centers are required by law to report non-compliant vendors to DDS.
Submit your CPA review or audit report to your Regional Center. For a June 30 FYE, this means March 31. For a December 31 FYE, this means September 30.
Your Regional Center must forward the report to DDS within 30 days of receiving it from you.
Engage your CPA early. We recommend beginning fieldwork at least 12 weeks before your 9-month deadline.
When is your deadline?
Use our free tool to calculate your exact submission deadline based on your specific fiscal year end.
Launch Deadline CalculatorCan You Qualify for an Exemption?
Two-Year Exemptions — Different Rules for Reviews and Audits
Reviews and audits have different exemption tests under WIC §4652.5(h):
- Review level ($500,000–$1,999,999): the regional center must grant a two-year exemption if it finds no issues in your prior-year review that affect regional center services. (Reviews do not produce an audit "opinion.")
- Audit level ($2,000,000+): you may receive a two-year exemption if your prior audit resulted in an unmodified opinion (or an unmodified opinion with additional communication), or a qualified opinion where the issues are not material — with continued resolution of any issues raised.
We help eligible vendors prepare the exemption request letter and supporting documentation. If approved, you will not need a CPA engagement for the following year — but you will still need to track your funding levels to confirm you remain eligible.
The DDS "Do Not Refer" List
When a Regional Center vendor fails to comply with WIC §4652.5 reporting requirements, the Regional Center is required by law to report the vendor to the Department of Developmental Services. DDS maintains a list of non-compliant vendors that Regional Center service coordinators cannot recommend to families — this is informally called the "Do Not Refer" list.
⚠️ What placement on the list means:
- Regional Center coordinators cannot refer new consumers to your organization
- Current consumers may be transitioned to compliant providers
- Your vendorization status may be subject to review or termination
- Reinstatement requires full compliance for at least one reporting cycle
The good news: placement on the list is avoidable. If you have received a compliance letter, the best action is to engage a CPA immediately and get the outstanding reports filed. We have handled multi-year catch-up engagements — even for vendors who were 3+ years behind — and helped them return to good standing.
Our Engagement Process
Free Intake Call (30 min)
You describe your situation — funding level, fiscal year end, whether you have received a compliance letter, and how many years may be outstanding. We assess scope and confirm what is needed.
Fixed-Fee Quote (within 1 business day)
We send you a written engagement letter with a fixed fee — no hourly billing surprises. You sign and provide us with your financial records.
Fieldwork
Our team reviews your financial statements, tests the 85/15 classification, evaluates internal controls, and performs all procedures required for the engagement level.
Draft Report + Management Letter
We issue a draft for your review. You confirm the facts are accurate. We finalize and issue the signed CPA report and management letter.
Submission to Regional Center
You forward the final report to your Regional Center within 30 days. We can guide you on the exact submission process if needed.
Ongoing Partnership
We are available year-round for questions. We proactively reach out 4–5 months before your next deadline to begin planning the next engagement.