§ 41020. — 41020. (Amended by Stats. 2021, Ch. 252, Sec. 7.)

California § 41020.

• Jurisdiction: California
• Code EDC: Education Code - EDC
• Div.: 3.
• Title 2.: DIVISION 3. LOCAL ADMINISTRATION
• Part 24.: PART 24. SCHOOL FINANCE
• Ch. 1.: CHAPTER 1. State Financial Management and Control
• Art. 2.: ARTICLE 2. Accounting Regulations, Budget Controls and Audits

Text

(a)
It is the intent of the Legislature to encourage sound fiscal management practices among local educational agencies for the most efficient and effective use of public funds for the education of children in California by strengthening fiscal accountability at the school district, county, and state levels.
(b)
(1)
Not later than the first day of May of each fiscal year, each county superintendent of schools shall provide for an audit of all funds under their jurisdiction and control and the governing board of each local educational agency shall either provide for an audit of the books and accounts of the local educational agency, including an audit of income and expenditures by source of funds, or make arrangements with the county
superintendent of schools having jurisdiction over the local educational agency to provide for that auditing.
(2)
A contract to perform the audit of a local educational agency that has a disapproved budget or has received a negative certification on any budget or interim financial report during the current fiscal year or either of the two preceding fiscal years, or for which the county superintendent of schools has otherwise determined that a lack of going concern exists, is not valid unless approved by the responsible county superintendent of schools and the governing board of the local educational agency.
(3)
If the governing board of a local educational agency has not provided for an audit of the books and accounts of the local educational agency by April 1, the county superintendent of schools having jurisdiction over the local educational agency shall provide for the audit of
the local educational agency.
(4)
An audit conducted pursuant to this section shall comply fully with the Government Auditing Standards issued by the Comptroller General of the United States.
(5)
For purposes of this section, “local educational agency” does not include community colleges.
(c)
Each audit conducted in accordance with this section shall include all funds of the local educational agency, including the student body and cafeteria funds and accounts and any other funds under the control or jurisdiction of the local educational agency. Each audit shall also include an audit of pupil attendance procedures. Each audit shall include a determination of whether funds were expended pursuant to a local control and accountability plan or an approved annual update to a local control and accountability plan pursuant
to Article 4.5 (commencing with Section 52059.5) of Chapter 6.1 of Part 28 of Division 4.
(d)
All audit reports for each fiscal year shall be developed and reported using a format established by the Controller after consultation with the Superintendent and the Director of Finance.
(e)
(1)
The cost of the audits provided for by the county superintendent of schools shall be paid from the county school service fund and the county superintendent of schools shall transfer the pro rata share of the cost chargeable to each school district from school district funds.
(2)
The cost of the audit provided for by a governing board of a local educational agency shall be paid from local educational agency funds. The audit of the funds under the jurisdiction and control of the county superintendent of schools
shall be paid from the county school service fund.
(f)
(1)
The audits shall be made by a certified public accountant or a public accountant, licensed by the California Board of Accountancy, and selected by the local educational agency, as applicable, from a directory of certified public accountants and public accountants deemed by the Controller as qualified to conduct audits of local educational agencies, which shall be published by the Controller not later than December 31 of each year.
(2)
Commencing with the 2003–04 fiscal year and except as provided in subdivision (d) of Section 41320.1, it is unlawful for a public accounting firm to provide audit services to a local educational agency if the lead audit partner, or coordinating audit partner, having primary responsibility for the audit, or the audit partner responsible for reviewing the audit, has
performed audit services for that local educational agency in each of the six previous fiscal years. The Education Audits Appeal Panel may waive this requirement if the panel finds that no otherwise eligible auditor is available to perform the audit.
(3)
It is the intent of the Legislature that, notwithstanding paragraph (2), the rotation within public accounting firms conform to provisions of the federal Sarbanes-Oxley Act of 2002 (Public Law 107-204; 15 U.S.C. Sec. 7201 et seq.), and upon release of the report required by the act of the Comptroller General of the United States addressing the mandatory rotation of registered public accounting firms, the Legislature intends to reconsider paragraph (2). In determining which certified public accountants and public accountants shall be included in the directory, the Controller shall use the following criteria:
(A)
The certified
public accountants or public accountants shall be in good standing as certified by the Board of Accountancy.
(B)
The certified public accountants or public accountants, as a result of a quality control review conducted by the Controller pursuant to Section 14504.2, shall not have been found to have conducted an audit in a manner constituting noncompliance with subdivision (a) of Section 14503.
(g)
(1)
The auditor’s report shall include each of the following:
(A)
A statement that the audit was conducted pursuant to standards and procedures developed in accordance with Chapter 3 (commencing with Section 14500) of Part 9 of Division 1 of Title 1.
(B)
A summary of audit exceptions and management improvement recommendations.
(C)
An evaluation by the auditor on whether there is substantial doubt about the ability of the local educational agency to continue as a going concern for a reasonable period of time. This evaluation shall be based on the Statement on Auditing Standards No. 59, as issued by the American Institute of Certified Public Accountants regarding disclosure requirements relating to the ability of the entity to continue as a going concern.
(2)
To the extent possible, a description of correction or plan of correction shall be incorporated in the audit report, describing the specific actions that are planned to be taken, or that have been taken, to correct the problem identified by the auditor. The descriptions of specific actions to be taken or that have been taken shall not solely consist of general comments such as “will implement,” “accepted the recommendation,” or “will discuss at a later
date.”
(h)
(1)
Not later than December 15, a report of each local educational agency audit for the preceding fiscal year shall be filed with the county superintendent of schools of the county in which the local educational agency is located, the department, and the Controller. The Superintendent shall make any adjustments necessary in future apportionments of all state funds to correct any audit exceptions revealed by those audit reports.
(2)
The audit report referenced in paragraph (1) for the 2020–21 fiscal year shall instead be filed no later than January 31, 2022.
(3)
The extension for the audit report referenced in subdivision (m) of Sections 47605 and 47605.6 for the 2020–21 fiscal year shall instead be filed no later than January 31, 2022.
(i)
(1)
Commencing with the 2002–03 audit of local educational agencies pursuant to this section and subdivision (d) of Section 41320.1, each county superintendent of schools shall be responsible for reviewing the audit exceptions contained in an audit of a local educational agency under their jurisdiction related to attendance, inventory of equipment, internal control, and any miscellaneous items, and determining whether the exceptions have been either corrected or an acceptable plan of correction has been developed.
(2)
Commencing with the 2004–05 audit of local educational agencies pursuant to this section and subdivision (d) of Section 41320.1, each county superintendent of schools shall include in the review of audit exceptions performed pursuant to this subdivision those audit exceptions related to use of instructional materials program funds, teacher
misassignments pursuant to Section 44258.9, and information reported on the school accountability report card required pursuant to Section 33126, and shall determine whether the exceptions are either corrected or an acceptable plan of correction has been developed.
(j)
Upon submission of the final audit report to the governing board of each local educational agency and subsequent receipt of the audit by the county superintendent of schools having jurisdiction over the local educational agency, the county office of education shall do all of the following:
(1)
Review audit exceptions related to attendance, inventory of equipment, internal control, and other miscellaneous exceptions. Attendance exceptions or issues shall include, but not be limited to, those related to local control funding formula allocations pursuant to Section 42238.02, as implemented by Section 42238.03, and
independent study.
(2)
(A)
If a description of the correction or plan of correction has not been provided as part of the audit required by this section, the county superintendent of schools shall notify the local educational agency and request the governing board of the local educational agency to provide to the county superintendent of schools a description of the corrections or plan of correction by March 15.
(B)
In audit reports for the 2020–21 fiscal year, the description of the corrections or plan of correction referenced in subparagraph (A) shall instead be filed no later than April 15, 2022.
(3)
Review the description of correction or plan of correction and determine its adequacy. If the description of the correction or plan of correction is not adequate, the county superintendent of
schools shall require the local educational agency to resubmit that portion of its response that is inadequate.
(k)
(1)
Each county superintendent of schools shall certify to the Superintendent and the Controller, not later than May 15, that the county superintendent of schools’ staff has reviewed all audits of local educational agencies under the county superintendent of schools’ jurisdiction for the prior fiscal year, that all exceptions that the county superintendent was required to review were reviewed, and that all of those exceptions, except as otherwise noted in the certification, have been corrected by the local educational agency or that an acceptable plan of correction has been submitted to the county superintendent of schools. In addition, the county superintendent shall identify, by local educational agency, any attendance-related audit exception or exceptions involving state funds, and require the local
educational agency to which the audit exceptions were directed to submit appropriate reporting forms for processing by the Superintendent.
(2)
For audit reports for the 2020–21 fiscal year, the deadline for certification referenced in paragraph (1) shall instead be filed no later than June 15, 2022.
(
l
)
In the audit of a local educational agency for a subsequent year, the auditor shall review the correction or plan or plans of correction submitted by the local educational agency to determine if the exceptions have been resolved. If an exception has not been resolved, the auditor shall immediately notify the appropriate county office of education and the department and restate the exception in the audit report. After receiving that notification, the department shall either consult with the local educational agency to resolve the exception or require the county superintendent
of schools to follow up with the local educational agency.
(m)
(1)
The Superintendent is responsible for ensuring that local educational agencies have either corrected or developed plans of correction for any one or more of the following:
(A)
All federal and state compliance audit exceptions identified in the audit.
(B)
Exceptions that the county superintendent of schools certifies as of May 15 have not been corrected.
(C)
Repeat audit exceptions that are not assigned to a county superintendent of schools to correct.
(2)
In addition, the Superintendent is responsible for ensuring that county superintendents of schools and each county board of education that serves as
the governing board of a local educational agency either correct all audit exceptions identified in the audits of county superintendents of schools and of the local educational agencies for which the county boards of education serve as the governing boards or develop acceptable plans of correction for those exceptions.
(3)
The Superintendent shall report annually to the Controller on the Superintendent’s actions to ensure that school districts, county superintendents of schools, and each county board of education that serves as the governing board of a school district have either corrected or developed plans of correction for any of the exceptions noted pursuant to paragraph (1).
(n)
To facilitate correction of the exceptions identified by the audits issued pursuant to this section, the Controller shall require auditors to categorize audit exceptions in each audit report in a
manner that will make it clear to both the county superintendent of schools and the Superintendent which exceptions they are responsible for ensuring the correction of by a local educational agency. In addition, the Controller annually shall select a sampling of county superintendents of schools, perform a followup of the audit resolution process of those county superintendents of schools, and report the results of that followup to the Superintendent and the county superintendents of schools that were reviewed.
(o)
County superintendents of schools shall adjust subsequent local property tax requirements to correct audit exceptions relating to local educational agency tax rates and tax revenues.
(p)
If a governing board or county superintendent of schools fails or is unable to make satisfactory arrangements for the audit pursuant to this section, the Controller shall make
arrangements for the audit and the cost of the audit shall be paid from local educational agency funds or the county school service fund, as the case may be.
(q)
Audits of regional occupational centers and programs are subject to this section.
(r)
This section does not authorize examination of, or reports on, the curriculum used or provided for in any local educational agency.
(s)
Notwithstanding any other law, a nonauditing, management, or other consulting service to be provided to a local educational agency by a certified public accounting firm while the certified public accounting firm is performing an audit of the agency pursuant to this section shall be in accord with Government Accounting Standards, Amendment No. 3, as published by the United States General Accounting
Office.

Legislative History

Amended by Stats. 2021, Ch. 252, Sec. 7. (AB 167) Effective September 23, 2021.