AB 143 and Your 10% Quality Incentive: Why a Missed Regional Center Audit Now Costs You More

What changed

For years, the rule was simple: receive enough regional center funding and you must obtain an independent CPA review or audit each year under Welfare & Institutions Code §4652.5. What's new is how much rides on it.

AB 143 (Chapter 12, Statutes of 2025), in Section 2, amended WIC §4519.10 to require that, beginning in FY 2026-27, a provider must be compliant with electronic visit verification (EVV), home- and community-based services (HCBS) rules, and its annual fiscal review and audit requirements to be eligible for the Quality Incentive Program. (Note the two statutes do different jobs: the audit duty itself lives in §4652.5; the link to your rate lives in §4519.10.)

The safety net is already gone

For the past year, a hold-harmless policy cushioned providers whose existing rates sat above the new rate model — they didn't take a cut while Rate Reform phased in. That cushion has now expired. Pursuant to Chapter 12, Statutes of 2025, DDS moved the end of the hold-harmless period up by four months — from June 30, 2026 to February 28, 2026 — and effective March 1, 2026, hold-harmless providers' rates were reset to 100% of the rate model for those who earned the quality incentive, and 90% for everyone else (DDS Directives D-2025-Legislation-002 and D-2025-Rate Reform-006).

In plain terms: the 10% quality incentive is no longer theoretical. It is the live difference between being paid 100% and 90% of your rate — right now.

Why this is bigger than the old penalty

Rate Reform changed how you get paid. Your full rate is now made up of two parts: a 90% base rate and a 10% quality incentive rate. Qualifying for that 10% depends on meeting program requirements — and your audit or review compliance is now one of them.

So the stakes have shifted. Previously, falling behind on your §4652.5 report mainly risked the "Do Not Refer" list, where a regional center pauses new referrals until you're compliant. That risk still exists. But now, a lapse can also jeopardize 10% of the rate you're paid on every authorization. For most vendors, that is a far larger number than the cost of the audit itself.

Where this leaves you for FY 2026-27 — and beyond

To earn the FY 2026-27 quality incentive, DDS required existing providers to be compliant with their independent audit or review — along with EVV and HCBS — by February 27, 2026, with the FY 2026-27 quality-incentive rates taking effect July 1, 2026 (DDS Directive D-2025-Quality Incentive Program-015).

If you were compliant, good — protect it. If you fell behind, the worst move is to keep waiting: each cycle carries the same compliance condition, so getting current now is what protects your eligibility going forward (and we routinely handle multi-year catch-up engagements for vendors who are one to three years behind). If you're not sure where your organization stands, that's exactly the kind of thing worth a phone call — (415) 916-7010.

Do you need a review or an audit?

It depends on how much regional center funding you receive — not your total revenue from all sources:

• $500,000 to $1,999,999 in regional center funding: an independent CPA review (limited assurance).
• $2,000,000 or more in regional center funding: a full independent audit (reasonable assurance).

The thresholds are measured on the State fiscal year (July 1–June 30), while your report covers your own fiscal year. Both the report and any management letter are due to your vendoring regional center within nine months of your fiscal year end. (More on the thresholds, exclusions, and the 85/15 program-spending rule in our other guides.)

The exclusions most vendors miss

Not every dollar counts, and not every entity is covered. Three points catch people off guard:

• Usual and customary rates don't count. Payments made at usual and customary rates (as defined in Title 17) are excluded from the threshold calculation.
• Government entities are exempt. State and local agencies, the University of California, and the California State University are not subject to the requirement.
• Work activity programs can owe a review under $500,000. Title 17 can require a review even below the usual threshold.

What a clean report earns you

Getting it right has real upside beyond simply staying compliant:

• A possible two-year exemption. A clean prior-year report can earn a two-year break from the requirement — though the test differs for reviews and audits, and a first-year vendor can't qualify. (Here's what the statute actually says about the exemption — it's widely misstated.)
• No escalation to the State. If your report carries a qualified opinion or flags significant issues, the regional center must report it to the Department of Developmental Services within 30 days, with a resolution plan. A clean report keeps your file out of that process.

Plan ahead — and budget for it correctly

Two practical notes. First, the nine-month clock runs from your fiscal year end, but good preparation starts long before that — clean books and proper expense classification throughout the year prevent last-minute findings. Second, you cannot recover the cost by asking for a rate increase: WIC §4652.5 specifically bars rate adjustments submitted solely to fund the cost of compliance. Treat the engagement as a fixed, planned cost.

How Guidepost helps

Guidepost focuses specifically on Regional Center vendor compliance — it's our practice area, not a side service — and we work with vendors across all 21 California regional centers. We know the thresholds, the deadlines, the exemption rules, and how a clean report protects both your referrals and your quality incentive rate.

Frequently asked questions

This article is general information about California Regional Center vendor audit requirements and is not legal or accounting advice for your specific situation. For guidance on your organization, contact a qualified CPA.