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).
Under Rate Reform, your full rate is 90% base + 10% quality incentive. If you fall out of compliance, you don't just risk the "Do Not Refer" consequence — you can put that 10% of your reimbursement at risk.
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 governing financial reporting requirements for vendors contracted with Regional Centers — the 21 state-funded agencies that coordinate services for individuals with developmental disabilities.
The law requires that any vendor receiving $500,000 or more in annual Regional Center funding must engage an independent CPA 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
- Primary procedures
- Analytical procedures, inquiries of management, variance analysis
- Report deliverable
- Review report + management letter (forwarded to RC within 30 days)
- Typical timeline
- 2–4 weeks from complete records
- Estimated fee
- $7,000 – $15,000
- Assurance level
- Reasonable assurance
- 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 complete records
- Estimated fee
- $15,000 – $25,000
Key Exclusions
- Usual and customary rate payments are excluded. Payments at usual and customary rates (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.
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 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 must certify that the review was performed under AICPA standards, that statements are management's representations, and that the accountant is not aware of any material modifications needed for the statements to conform with GAAP.
The 85/15 Rule
Vendors must demonstrate they are using Regional Center funds appropriately: at least 85% of Regional Center funds on direct program services, and no more than 15% on administration, management, and overhead.
The classification of expenses — whether a cost is "program" or "administrative" — is one of the most commonly misapplied requirements. See our full 85/15 guide →
Common Classification Errors
❌ 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.
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 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.
- Audit level ($2,000,000+): the regional center must grant a two-year exemption if your prior audit resulted in an unmodified opinion, 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. Full exemption guide →
The DDS "Do Not Refer" List
When a Regional Center vendor fails to comply with WIC §4652.5, the Regional Center is required by law to report the vendor to DDS. DDS maintains a list of non-compliant vendors that Regional Center service coordinators cannot recommend to families — informally called the "Do Not Refer" list.
This flows from WIC §4652.5(c)–(d): the Regional Center must require resolution of issues and can escalate to termination of vendorization. DDS publishes vendor compliance data annually in its performance dashboard.
⚠️ 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, engage a CPA immediately. We have handled multi-year catch-up engagements 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, compliance letter status, and years outstanding. We assess scope and confirm what is needed.
Fixed-Fee Quote (within 1 business day)
We send a written engagement letter with a fixed fee — no hourly billing surprises. You sign and provide financial records.
Fieldwork
Our team reviews your financial statements, tests the 85/15 classification, evaluates internal controls, and performs all required procedures.
Draft Report + Management Letter
We issue a draft for your review. You confirm the facts. 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 guide you on the exact submission process.
Ongoing Partnership
We are available year-round for questions and proactively reach out 4–5 months before your next deadline.
Frequently Asked Questions
No. Only the money received from Regional Centers counts toward the threshold. Private pay, Medi-Cal, insurance, grants, and other sources are excluded.
The thresholds are based on aggregate Regional Center funding. If you receive $300,000 from one and $250,000 from another, your total is $550,000 and you need a CPA review.
No. WIC §4652.5 requires an independent CPA — one who has no other financial relationship with your organization.
Typically: general ledger, trial balance, bank statements, payroll records, fixed asset schedule, accounts receivable/payable aging, prior year financial statements, and your Regional Center contracts and payment records.
First-year engagements require additional procedures to establish opening balances and assess internal controls. This typically adds time and cost — we recommend not waiting until the last minute.
It is almost never too late. We have completed multi-year catch-up engagements for vendors who had not filed for 2–3 years. Act quickly — each additional year of delay compounds the risk to your vendorization status.
Beginning in FY 2026-27, staying compliant is a condition of QIP eligibility. Your rate is 90% base + 10% quality incentive, so falling out of compliance can put that 10% at risk in addition to the "Do Not Refer" consequence.
The regional center must notify DDS within 30 days, along with a plan to resolve the issues. A qualified opinion does not stay between you and your regional center — it is reported to the State.
No. WIC §4652.5 specifically provides that the Department will not consider rate-adjustment requests submitted solely to fund the cost of compliance.
Yes. State and local government agencies, the University of California, and the California State University are exempt. Work activity program providers can be required to obtain a review even below $500,000 under Title 17.