A. A private foundation affiliated with a State agency that is required to register with the Secretary of State as a charitable organization shall file with its registration statement and with each annual report an audit prepared in accordance with generally accepted auditing standards if it is required to do so under Business Regulation Article, §6-402(b)(7)(i), Annotated Code of Maryland.
B. The auditor's opinion shall state whether the financial statements present fairly the financial position of the private foundation and the results of its operations and changes in fund balance for the year then ended, in conformity with generally accepted accounting principles.
C. The auditor shall give an agreed-upon procedures report describing the procedures performed and shall make a finding with respect to each of the following items, stating whether anything came to the attention of the auditor which would cause the auditor to have an adverse opinion as to each item:
(1) Whether the unrestricted resources of the organization were used in accordance with its purposes as stated in its charter, its bylaws, and the actions of its governing board;
(2) Whether restricted gifts or grants have been properly segregated and used in accordance with the restrictions or designations imposed by the donor or grantor;
(3) Whether all restricted funds are reported clearly as such;
(4) Whether the foundation is in compliance with agreements between the foundation and its affiliated State agency, particularly as they relate to money due the State agency from the private foundation.
(5) Whether the foundation's expenditures and activities are in compliance with the Internal Revenue Code, the Maryland Solicitations Act under Business Regulation Article, Title 6, Annotated Code of Maryland, and other federal, State, and local laws governing financial matters;
(6) Whether securities owned by the foundation are in existence and adequately accounted for;
(7) Whether purchases and sales of securities were properly authorized;
(8) Whether investment income and gains or losses have been recorded in the appropriate fund;
(9) Whether adequate internal controls are in place to provide reasonable satisfaction that the amounts reported as contributions are not materially misstated;
(10) Whether adequate internal controls are in place to provide reasonable satisfaction that expenditures are properly classified; and
(11) Whether grants by the foundation have been authorized by the governing board and procedures have been established to ascertain whether the grants made have been expended for their intended purposes.
D. If the auditor is unable to render an unqualified opinion regarding the financial statements of the organization or for any item in §B of this regulation, the auditor shall inform the organization in writing of recommendations for corrective action.
E. The auditor's written recommendations for corrective action shall be filed by the foundation with its affiliated State agency and with the Secretary of State.
F. Review of Auditor's Recommendations.
(1) The Secretary of State shall review the auditor's recommendations and determine whether:
(a) Further auditing or other investigation is necessary; and
(b) Action shall be taken based on the auditor's recommendations and any investigation conducted.
(2) The Secretary of State may take one or more of the following actions based on the auditor's report or recommendations:
(a) Require the organization to take corrective action;
(b) Require the organization to report on corrective action taken within a certain time;
(c) Delay the registration or renewal of the organization;
(d) Refer the matter to the Attorney General for civil enforcement; and
(e) Refer the matter to the appropriate State's attorney for prosecution.