The WIC §4652.5 Two-Year Exemption: What the Statute Actually Says (and What Most Vendors Are Told Wrong)

What the two-year exemption is

Under WIC §4652.5, vendors that receive $500,000 or more from regional centers in a state fiscal year must obtain an independent CPA review (at $500,000–$1,999,999) or a full audit (at $2,000,000+) each year. The two-year exemption, in subdivision (h), is the statute's reward for a clean track record: when your prior year's report is clean, the regional center must grant you a two-year break from the requirement.

Two words matter most here: "shall grant." When you meet the condition and apply, the exemption is not discretionary — the regional center is required to grant it. But note the other key word: apply. The exemption is not automatic. You have to request it.

The test is different for reviews and for audits

This is the single most common place vendors (and even some accountants) get it wrong. There is no one-size test — the rule splits by your engagement level.

Review level ($500,000–$1,999,999 in regional center funding). The regional center must grant a two-year exemption if it does not find issues in your prior year's review report that have an impact on regional center services. Note what this does not say: it does not turn on an "opinion." A review produces limited (negative) assurance, not an audit opinion — so the test is simply whether the prior review surfaced issues affecting regional center services.

Audit level ($2,000,000+ in regional center funding). Here the test turns on the opinion your audit received. The regional center must grant a two-year exemption if your prior year's audit resulted in:

• an unmodified opinion (including an unmodified opinion with additional communication); or
• a qualified opinion where the issues are not material.

A qualified opinion, in other words, does not automatically cost you the exemption — if the issues behind it are not material, you can still qualify. One catch: any issues raised must continue to be addressed, exemption or not.

Which year earns the exemption — and why first-year vendors can't get it

The exemption is backward-looking in trigger, forward-looking in effect. It is earned by your most recent (prior-year) clean report, and it applies to the next two years' requirements. A clean report this year is what buys you the break next year and the year after.

That single fact resolves a myth we see constantly: that a newly vendorized, first-year vendor can claim the exemption. They cannot. A first-year vendor has no prior-year report to be clean — there is nothing yet for the regional center to have reviewed. You have to complete at least one engagement, get a clean result, and then apply. If a salesperson or a generalist tells a brand-new vendor they can skip their first audit under the two-year exemption, that advice is simply wrong, and acting on it is how vendors end up on the "Do Not Refer" list.

The myths, corrected

• "You need two consecutive years of clean reports." No. The statute keys off the prior year's report — one clean report, not two consecutive years.
• "You must have implemented corrective actions to qualify." Not a statutory condition for the exemption. (For an audit with a qualified opinion, issues must continue to be addressed — but that is not the same as a blanket "corrective actions implemented" prerequisite.)
• "A qualified opinion disqualifies you." Not at the audit level — a qualified opinion with immaterial issues still earns the exemption.
• "It's automatic once you have a clean report." No. You must apply to the regional center.
• "New vendors can use it to skip year one." No — there is no prior-year report to qualify on.

What to do if you think you qualify

1. Confirm your engagement level (review vs. audit) based on your regional center funding for the state fiscal year (July 1–June 30).
2. Check your most recent report against the right test — "no issues affecting regional center services" for a review, or the opinion type for an audit.
3. Submit a written exemption request to your vendoring regional center. Keep documentation.
4. Keep tracking your funding levels — if you cross a threshold or your situation changes, your obligation can change with it.
5. Remember the exemption frees you from the engagement for two years, but it does not erase issues that were raised — those still need to be addressed.

The exemption is genuinely valuable — it can save a clean vendor the cost of an engagement for two years — but it rewards getting the work right in the first place. A clean report is the entry ticket, and increasingly it protects more than your time: under AB 143, staying compliant with your audit or review is now tied to your Quality Incentive Program rate as well.

Frequently asked questions

Not sure whether your prior-year report qualifies you for the two-year exemption — or whether you even need a review or an audit? Call us at (415) 916-7010 and we'll walk you through it.

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.