20250AB__008491AMD INTRODUCED 2024-12-20 AMENDED_ASSEMBLY 2025-03-19 AMENDED_ASSEMBLY 2025-05-05 AMENDED_ASSEMBLY 2025-06-02 AMENDED_ASSEMBLY 2025-06-03 AMENDED_SENATE 2025-07-08 AMENDED_SENATE 2025-07-17 AMENDED_SENATE 2025-08-29 AMENDED_SENATE 2025-09-09 2025 AB AMD Introduced by Assembly Members Muratsuchi and Garcia (Coauthor: Senator Arreguí

n) LEAD_AUTHOR ASSEMBLY Muratsuchi LEAD_AUTHOR ASSEMBLY Garcia COAUTHOR SENATE Arreguín

An act to amend Sections 1240, 14500, 14501, 14502.1, 14503, 14504, 14504.2, 14505, 14506, 14507, 14508, 14509, 41020, 41020.2, 41020.3, 41020.5, 41020.8, 41341, 41344.4, 42100, 44258.9, 45037, 45125.1, 47604.32, 47604.33, 47605, 47605.6, 47612.5, 47634.2, 51745.6, 51746, 51747.5, and of, to add Sections 33309.5, 41020.4, 46149, 47604.35, 47604.6, 47605.8, 47605.10, and 47634.3 to, to add

Article 7 (commencing with

Section 47670) to

Chapter of

Part 26.8 of Division of Title of, and to add

Article 11.5 (commencing with

Section 51827) to

Chapter of Part of Division of Title of, and to add and repeal

Section of, the Education Code, relating to school accountability. school accountability School accountability: Office of the Education Inspector General: school financial and performance audits: charter school authorization, oversight, funding, operations, networks, and contracting: data systems: local educational agency contractor background checks and contracting.

(1) Existing law requires county superintendents of schools to provide for an audit of all funds under their jurisdiction and control, and requires the governing board of each local educational agency to either provide for an audit of the books and accounts of the local educational agency or make arrangements with county superintendents of schools to provide for that auditing.

Existing law requires the governing board of each school district and each office of the county superintendent of schools to include specified provisions in their contracts for audits and requires financial and compliance audits to be performed in accordance with specified standards.

If the governing board of a school district has entered into a contract for an independent audit of its financial statements and the audited financial statements have not been filed with the county superintendent of schools on or before a specified due date, existing law authorizes the county superintendent of schools to, among other things, investigate the causes for the delay, as provided. This bill would expressly apply the above-described provisions to educational joint powers authorities and charter schools.

The bill, among other things, would require those financial and compliance audits of local educational agencies to be conducted in accordance with specified filing deadlines and would revise requirements regarding which entity is responsible for providing an audit if a local educational agency has not provided for an audit of their respective books and accounts to include the Controller or a chartering authority, as provided. The bill would require, instead of authorize, a county superintendent of schools to investigate the causes for an above-described delay.

The bill would require a local educational agency to post the local educational agency’s annual financial and compliance audits on its internet website. Existing law requires the Controller to, among other things, on an annual basis, review and monitor the audit reports performed by independent auditors, determine whether audit reports are in conformance with specified reporting provisions, and notify each local educational agency, the responsible county superintendent of schools, the Superintendent, the Department of Finance, and the auditor regarding each determination.

Existing law authorizes the Controller to perform quality control reviews of audit working papers to determine whether audits are performed in conformity with those specified standards. Existing law requires the Controller to annually report to the State Department of Education to apprise the department of school districts and offices of county superintendents of schools that are not in compliance with applicable statutes and regulations related to audits and requires the Controller to make recommendations as to what action should be taken by the department.

The bill would require the Controller to, if applicable, notify the responsible chartering authority of each determination made, as referenced above, and would require notification to applicable entities to be made within months of the audit report due date or the audit report issue date, whichever is later. The bill would require the Controller to establish and publish as part of the audit guide a weighted risk-based criteria that considers auditor experience and quality factors in determining which audit engagements are required to undergo a quality control review, as provided.

The bill would require the Controller to instead report and provide recommendations to the Superintendent of entities not in compliance with applicable statutes and regulations and would include educational joint powers authorities and charter schools as reported entities.

The bill, commencing with the 2027–28 fiscal year Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting, would require the Controller to include, among other things, instructions requiring specified supplemental information and schedules in audit report components for local educational agency audits and an appendix with the Controller’s desk review checklist that is used to determine whether audit reports are in conformance with specified reporting requirements, as provided.

Existing law requires audits to be made by a certified public accountant or a public accountant, licensed by the California Board of Accountancy, and selected by a 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.

In order to be added to, or remain on, the Controller’s directory of certified public accountants and public accountants as described above, the bill would require, commencing with the 2027–28 fiscal year, and every years thereafter, audit engagement partners and certified public accountants or public accountants responsible for local educational agency audits to, among other things, complete hours of continuing education, demonstrate specified experience, and maintain compliance with the California Board of Accountancy requirements to keep applicable licenses in active status and good standing, as provided.

The bill would also apply the continuing education requirement to audit staff who perform audit procedures of local educational agencies. To the extent the bill would impose additional duties on local educational agencies or local officials, the bill would impose a state-mandated local program.

(2) Existing law establishes the State Department of Education, under the administration of the Superintendent of Public Instruction, and assigns to it numerous duties relating to the governance and financing of the public elementary and secondary schools of this state. This bill would establish the Office of the Education Inspector General. The bill would provide for the appointment of the Education Inspector General by the Governor from a list of qualified individuals nominated by the Joint Legislative Audit Committee, subject to confirmation by a vote of the majority of the membership of the Senate. The bill would require the Education Inspector General to, among other things, (

A) conduct and supervise forensic audits and investigations of the programs and operations of the department, school districts, county offices of education, charter schools, educational joint powers authorities, state special schools, and entities managing charter schools related to fraud, misappropriation of funds, and other illegal practices and (

B) annually report to the appropriate policy committees of the Legislature on investigations and audits of the programs and operations of the department, local educational agencies, and entities managing a charter school.

(3) Existing law requires the Commission on Teacher Credentialing to establish standards for the issuance and renewal of credentials, certificates, and permits. Existing law requires the commission and the department to enter into a data sharing agreement for the department to provide the commission with educator assignment data necessary to annually identify educator misassignments and vacant positions at local educational agencies, as provided, as part of the State Assignment Accountability System.

Existing law requires the commission to annually use data it receives from the department to produce an initial data file of vacant positions and educator assignments that do not have a clear match of credential to assignment and requires the commission to notify local educational agencies and monitoring authorities of the opportunity to access and review the initial data file of potential misassignments, as defined, and vacant positions. Existing law grants the commission the authority to make a final determination for all potential misassignments.

Existing law requires, commencing with the 2020–21 school year, the commission to make annual educator assignment, misassignment, and vacant position data publicly available on its internet website. This bill would require teachers employed by a local educational agency and offering certain courses to hold the certificate, permit, or other document required by the commission for that assignment and be monitored. To the extent that this provision would create new duties for county superintendents of schools and local educational agencies, it would constitute a state-mandated local program.

(4) Existing law establishes a public school financing system that requires state funding for school districts, county offices of education, and charter schools to be calculated pursuant to a local control funding formula, as specified. Existing law includes average daily attendance as a component of the calculation under the local control funding formula.

Existing law establishes the California Longitudinal Pupil Achievement Data System, which is maintained by the State Department of Education and consists of pupil data from elementary and secondary schools, as specified, relating to demographics, program participation, enrollment, and statewide assessments, among other things.

This bill would require the department to, by January 1, 2030, and in consultation with the County Office Fiscal Crisis Management Assistance Team, complete a report with specified data relating to the possible integration of the California Longitudinal Pupil Achievement Data System and the average daily attendance apportionment data system, and would require the department to provide the report to the appropriate policy and fiscal committees of the Legislature, as provided.

(5) Existing law requires the Superintendent, if, during any fiscal year, the amount apportioned to a school district or to any fund from

Section A of the State School Fund differs either positively or negatively from the amount to which the school district or fund was entitled by an amount equal to the local control funding formula allocation for one unit of average daily attendance, not later than the first succeeding fiscal year from the fiscal year in which the computational error was made, to withhold from, or add to, the apportionment made during that fiscal year, the amount of the excess of deficiency, as the case may be.

This bill would require the Superintendent to apply the above-described provisions to county offices of education and charter schools. If, during any fiscal year, a school district, county office of education, or charter school determines that the amount apportioned to the school district, county office of education, charter school, or to any fund from

Section A of the State School Fund differs either positively or negatively from the amount to which the school district, county office of education, charter school, or fund was entitled by an amount equal to the local control funding formula allocation for one or more units of average daily attendance, the bill would require the local educational agency to report the corrected amount to the Superintendent. To the extent the bill would impose additional duties on a local educational agency, the bill would impose a state-mandated local program.

Existing law requires state funding to be calculated and withheld from a school district or county office of education for any fiscal year in which a person renders service as a teacher in kindergarten or any of grades to 12, inclusive, who does not have a valid certification document, as provided. The bill would apply the above-described provisions relating to the penalties for a person rendering services as a teacher who does not have a valid certification document to charter schools, as provided.

(6) The Charter Schools Act of authorizes the establishment, operation, and governance of charter schools. Existing law requires a petition to establish a charter school to include reasonably comprehensive descriptions of certain things, including the manner in which annual, independent financial audits shall be conducted, and the manner in which audit exceptions and deficiencies shall be resolved to the satisfaction of the chartering authority. Commencing July 1, 2028, the bill would require each chartering authority to, with respect to each charter school under its authority, (

A) annually review specified data relating to the reporting of average daily attendance by nonclassroom-based charter schools, (

B) review the agenda and minutes of the meetings of the governing body of the charter school, (

C) annually attend at least one meeting of the governing body of the charter school, as specified, and (

D) identify and provide notification to the governing body of the charter school of any material concern arising out of the chartering authority’s ongoing oversight and monitoring activities. The bill would authorize the State Board of Education, in consultation with the Superintendent of Public Instruction, to revise regulations, including emergency regulations, to require charter schools to prepare periodic and annual financial data in the same manner prescribed for school districts, as provided.

The bill would phase in, from the 2028–29 fiscal year to the 2030–31 fiscal year, inclusive, and based on the average daily attendance of the charter school and whether the charter school is a nonclassroom-based charter school, the requirement that charter schools report this data in the same manner prescribed for school districts, as provided.

The bill would require the state board to appoint an advisory committee on charter schools that would include representatives from school district superintendents, charter schools, teachers, members of the governing boards of school districts, county superintendents of schools, and the Superintendent.

The bill would prohibit a school district with an average daily attendance of fewer than 10,000 pupils from authorizing one or more nonclassroom-based charter schools or approving a material revision to expand one or more nonclassroom-based charter schools if doing so would result in more than a totality of 100% of the average daily attendance of the school district and would create an exception for a nonclassroom-based charter school in operation on or before December 31, 2025, that exceeds that limitation if, as of December 31, 2025, certain requirements are met.

The bill would establish the Charter Authorizing Support Team program, to be administered by the County Office Fiscal Crisis and Management Assistance Team, in consultation with the State Department of Education, as an initiative to expand uniform charter school authorizing and oversight practices.

The bill would specify the goals and proposed activities of the program, including the appointment of a 13-member advisory board with designated membership and responsibilities.</xhtml:p>"?> The bill would require charter schools to obtain the approval of the governing body of the charter school for any contract that would cause the charter school to compensate an individual contractor more than $100,000 in a fiscal year.

Existing law requires the amount of funding to be allocated to a charter school on the basis of average daily attendance that is generated by pupils engaged in nonclassroom-based instruction, as defined, to be adjusted by the state board, as provided.

This bill would revise and recast those provisions by, among other things, requiring the above-described determination for funding to instead be on a percentage basis and requiring the Superintendent of Public Instruction to implement the determination for funding by reducing the charter school’s reported average daily attendance by the determination for funding percentage specified by the state board, as provided. The bill would require charter schools to adhere to specified criteria when submitting a funding determination request, as provided.

The bill would require the Superintendent to notify the chartering authority of a charter school that is maintaining an unassigned fund balance for economic uncertainties that is 5% or less of the charter school’s annual expenditures. Beginning with the 2027–28 school year, the bill would require the State Department of Education to annually develop a list that identifies networks of nonclassroom-based charter schools, as defined, based on data from the prior school year.

To the extent that these additions to the act would impose new duties on local educational agencies, they would constitute a state-mandated local program.

(7) This bill would establish the Chartering Authority Mentor Grant Program to be administered by the Superintendent for the purpose of providing chartering authority mentors with grants to provide technical assistance to eligible chartering authorities of charter schools. The bill would establish the Charter School Authorizer Grant Program within the department to provide grants to chartering authorities for certain increased costs associated with the responsibilities imposed by this bill, as provided.

The bill would establish the Charter School Standardized Account Code Structure Grant Program within the department to provide grants of up to $50,000 per charter school that has not fully implemented the Standardized Account Code Structure as of June 30, 2025, as provided. (7)</xhtml:p>"?>

(8) Existing law authorizes a school district, county office of education, or charter school to offer independent study to meet the educational needs of pupils when certain requirements are met, including, among others, that the local educational agency has adopted written policies, and implemented those policies, in accordance with rules and regulations adopted by the Superintendent, as specified. Existing law, for purposes of independent study, requires those programs to meet specified average-daily-attendance-to-certificated-employee ratios.

Existing law authorizes a local educational agency to claim apportionment credit for independent study only to the extent of the time value of pupil work products. Existing law prohibits school districts and county offices of education from being eligible to receive apportionment for independent study attendance by any pupil who is not otherwise identified in the written records of the school district or county board of education, as provided.

This bill would, among other things, extend the latter-described prohibition to charter schools, revise required average-daily-attendance-to-certificated-employee ratios, and add requirements to the independent study policies and procedures, as provided. The bill would require a local educational agency to maintain one completed pupil work product in each of specified subjects for a pupil enrolled in independent study for each of specified attendance periods, except as provided.

The bill would require the governing board or body of a school district, educational joint powers authority, county office of education, or charter school, on or before July 1, 2027, to adopt a policy in order to evaluate and approve contractors. The bill would require the policy to include specified provisions, including, among other things, that a local educational agency is prohibited from (

A) expending public funds for a contract unless the materials, programs, and activities are nonsectarian, (

B) offering financial payments or gifts as an incentive for pupil enrollment, referral, or retention, and (

C) purchasing or contracting for season passes or membership to amusement or theme parks, zoos, or family entertainment activities, except as provided. (8)</xhtml:p>"?>

(9) Existing law requires any entity that has a contract with a school district, county office of education, or charter school to ensure that any employee who interacts with pupils, outside of the immediate supervision and control of the pupil’s parent or guardian or a school employee, has a valid criminal records

summary, as specified. This bill would require an entity that has a contract with a local educational agency to instead ensure any employee who interacts with pupils has a valid criminal records

summary without regard to whether the interaction takes place outside of the immediate supervision and control of the pupil’s parent or guardian or a school employee. (9)</xhtml:p>"?>

(10) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above. MAJORITY NO YES YES NO NO NO NO NO NO NO The people of the State of California do enact as follows:

SECTION 1. The Legislature finds and declares all of the following: (

a) Accountability within public educational funding is the expressed interest of the Legislature. (

b) Consistency of the application of audit standards and requirements across school districts, county superintendents of schools, and charter schools, known collectively as local educational agencies, is an essential component of transparency. (

c) Sound fiscal management practices across local educational agencies promote the most efficient and effective use of public funds for the education of children by strengthening fiscal accountability at local educational agencies. (

d) Quality audits of local educational agencies are necessary for consistent financial and compliance transparency and to produce essential accountability measures. (

e) The quality of audits of local educational agencies is directly influenced by the quality of certified and noncertified public accountants who serve as auditors. (

f) The quality of individual auditors’ work product is correlated to training and experience. (

g) Processes that ensure a thorough and fair evaluation of audit and auditor quality and provide for appropriate discipline of auditors are essential.

SEC. 2.

Section of the Education Code is amended to read: 1240. The county superintendent of schools shall do all of the following: (

a) Superintend the schools of that county. (

b) Maintain responsibility for the fiscal oversight of each school district in that county pursuant to the authority granted by this code. (c)

(1) Visit and examine each school in the county at reasonable intervals to observe its operation and to learn of its problems. The county superintendent of schools annually may present a report of the state of the schools in the county, and of the county office of education, including, but not limited to, observations from visiting the schools, to the board of education and the board of supervisors of the county. (2) (A) (

i) Commencing with the 2021–22 fiscal year, the Superintendent shall identify a list of schools, which shall include charter schools, for which the county superintendent, or a designee, shall inspect annually, and about which the county superintendent, or a designee, shall submit an annual report, at a regularly scheduled November board meeting, to the governing board of each school district under the jurisdiction of the county superintendent, the county board of education of that county, and the board of supervisors of that county, that describes the state of the schools in the county.

The list established in the 2021–22 fiscal year shall also be used as the list established in the 2022–23 and 2023–24 fiscal years. The list of schools established pursuant to this

section shall be reestablished in the 2024–25 fiscal year and again every three fiscal years thereafter. Each list shall be established in accordance with clause (ii), and shall be used for inspections beginning the following fiscal year. (ii) The list of schools pursuant to clause (

i) shall be compiled as follows: (

I) The Superintendent shall include on the list all schools that were most recently identified for comprehensive support and improvement and additional targeted support and improvement pursuant to the federal Every Student Succeeds Act (Public Law 114-95) or identified as low performing under the federal Elementary and Secondary Education Act of 1965 (Public Law 89-10), or any subsequent amendments to that act.

For the list established in the 2021–22, 2022–23, and 2023–24 fiscal years, the Superintendent shall use the list of schools identified in the 2019–20 fiscal year for comprehensive support and improvement and for additional targeted support and improvement. (II) The Superintendent shall include on the list all schools where percent or more of the teachers are holders of a permit or certificate, such as a temporary or short-term permit, a substitute permit, a waiver, an intern credential, or any other authorization that is a lesser certification than a preliminary or clear California teaching credential.

With the exception of alternative schools, all schools within a local educational agency that fail to meet the requirements of Sections 44258.9 and shall be included on the list for the applicable reporting cycle. (III) The list of schools compiled pursuant to clause (

i) shall exclude alternative schools within the meaning of subdivision (

d) of

Section and other schools accepted for participation in the Dashboard Alternative School Status program by the department. (iii) The annual report shall include the determinations for each school made by the county superintendent, or the county superintendent’s designee, regarding the status of all of the circumstances listed in subparagraph (

E) and teacher misassignments and teacher vacancies, as described in

Section 44258.9, and the county superintendent, or the county superintendent’s designee, shall use a standardized template to report the circumstances listed in subparagraph (

E) and teacher misassignments and teacher vacancies, as described in

Section 44258.9, unless the current annual report being used by the county superintendent, or the county superintendent’s designee, already includes those details with the same level of specificity that is otherwise required by this subdivision. (

B) The county superintendent of the Counties of Alpine, Amador, Del Norte, Mariposa, Plumas, and Sierra, and the City and County of San Francisco shall contract with another county office of education or an independent auditor to conduct the required visits and make all reports required by this paragraph. (

C) On a quarterly basis, the county superintendent, or the county superintendent’s designee, shall report the results of the visits and reviews conducted that quarter to the governing board of the school district at a regularly scheduled meeting held in accordance with public notification requirements. The results of the visits and reviews shall include the determinations of the county superintendent, or the county superintendent’s designee, for each school regarding the status of all of the circumstances listed in subparagraph (

E) and teacher misassignments and teacher vacancies, as described in

Section 44258.9. If the county superintendent, or the county superintendent’s designee, conducts no visits or reviews in a quarter, the quarterly report shall report that fact. (

D) The visits made pursuant to this paragraph shall be conducted at least annually and shall meet the following criteria: (

i) Minimize disruption to the operation of the school. (ii) Be performed by individuals who meet the requirements of

Section 45125.1. (iii) Consist of not less than percent unannounced visits in each county. During unannounced visits in each county, the county superintendent shall not demand access to documents or specific school personnel. Unannounced visits shall only be used to observe the condition of school repair and maintenance, and the sufficiency of instructional materials, as defined by

Section 60119. (

E) The priority objective of the visits made pursuant to this paragraph shall be to determine the status of all of the following circumstances: (

i) Sufficient textbooks, as defined in

Section and as specified in subdivision (i). (ii) The condition of a facility that poses an emergency or urgent threat to the health or safety of pupils or staff, as described in school district policy or paragraph (1) of subdivision (

c) of

Section 17592.72. (iii) The accuracy of data reported on the school accountability report card with respect to the availability of sufficient textbooks and instructional materials, as defined by

Section 60119, and the safety, cleanliness, and adequacy of school facilities, including good repair, as required by Sections 17014, 17032.5, 17070.75, and 17089. (

F) The county superintendent may make the status determinations described in subparagraph (

E) during a single visit or multiple visits. In determining whether to make a single visit or multiple visits for this purpose, the county superintendent shall take into consideration factors such as cost-effectiveness, disruption to the schoolsite, deadlines, and the availability of qualified reviewers. (

G) If the county superintendent determines that the condition of a facility poses an emergency or urgent threat to the health or safety of pupils or staff as described in school district policy or paragraph (1) of subdivision (

c) of

Section 17592.72, or is not in good repair, as specified in subdivision (

d) of

Section and required by Sections 17014, 17032.5, 17070.75, and 17089, the county superintendent, among other things, may do any of the following: (

i) Return to the school to verify repairs. (ii) Prepare a report that specifically identifies and documents the areas or instances of noncompliance if the school district has not provided evidence of successful repairs within days of the visit of the county superintendent or, for major projects, has not provided evidence that the repairs will be conducted in a timely manner. The report may be provided to the governing board of the school district. If the report is provided to the school district, it shall be presented at a regularly scheduled meeting held in accordance with public notification requirements.

The county superintendent shall post the report on the internet website of the county superintendent. The report shall be removed from the internet website when the county superintendent verifies the repairs have been completed. (

H) For schools that are identified on the list established in the 2024–25 fiscal year pursuant to subparagraph (A), and only in the fiscal years in which that list is used, a county superintendent shall complete the textbook and instructional materials review conducted for purposes of this paragraph and subparagraph (

A) of paragraph (3) of subdivision (

i) by the eighth week of the school year. The county superintendent shall prioritize reviewing, within the first four weeks of the school year where practicable, schools for which the county superintendent has received information from a survey, a complaint filed pursuant to

Section 35186, or any other reliable source that the school does not have sufficient textbooks, as defined in

Section and as specified in subdivision (i), or that a facility of the school poses an emergency or urgent threat to the health or safety of pupils or staff as described in school district policy or paragraph (1) of subdivision (

c) of

Section 17592.72, or is not in good repair, as specified in subdivision (

d) of

Section and required by Sections 17014, 17032.5, 17070.75, and 17089. (

d) Distribute all laws, reports, circulars, instructions, and blanks that the county superintendent may receive for the use of the school officers. (

e) Annually, on or before September 15, present a report to the governing board of the school district and the Superintendent regarding the fiscal solvency of a school district with a disapproved budget, qualified interim certification, or a negative interim certification, or that is determined to be in a position of fiscal uncertainty pursuant to

Section 42127.6. (

f) Keep in the office of the county superintendent the reports of the Superintendent. (

g) Keep a record of the official acts of the county superintendent and of all the proceedings of the county board of education, including a record of the standing, in each study, of all applicants for certificates who have been examined, which shall be open to the inspection of an applicant or an authorized agent of the applicant. (

h) Enforce the course of study. (i)

(1) Enforce the use of state textbooks and instructional materials and of high school textbooks and instructional materials regularly adopted by the proper authority in accordance with

Section 51050.

(2) For purposes of this subdivision, sufficient textbooks or instructional materials has the same meaning as in subdivision (

c) of

Section 60119. (3) (

A) Commencing with the 2022–23 school year, if a school is identified as specified in subparagraph (

A) of paragraph (2) of subdivision (c), the county superintendent specifically shall review that school at least annually as a priority school. A review conducted for purposes of this paragraph shall be completed by the fourth week of the school year, except as specified in subparagraph (

H) of paragraph (2) of subdivision (c). (

B) In order to facilitate the review of instructional materials before the fourth week of the school year, the county superintendent in a county with or more schools that are identified as specified in subparagraph (

A) of paragraph (2) of subdivision (

c) may use a combination of visits and written surveys of teachers for the purpose of determining sufficiency of textbooks and instructional materials in accordance with subparagraph (

A) of paragraph (1) of subdivision (

a) of

Section and as defined in subdivision (

c) of

Section 60119. If a county superintendent elects to conduct written surveys of teachers, the county superintendent shall visit the schools surveyed within the same academic year to verify the accuracy of the information reported on the surveys. If a county superintendent surveys teachers at a school in which the county superintendent has found sufficient textbooks and instructional materials for the previous two consecutive years and determines that the school does not have sufficient textbooks or instructional materials, the county superintendent shall, within business days, provide a copy of the insufficiency report to the school district as set forth in paragraph (4). (

C) For purposes of this paragraph, “written surveys” may include paper and electronic or online surveys.

(4) If the county superintendent of schools determines that a school does not have sufficient textbooks or instructional materials in accordance with subparagraph (

A) of paragraph (1) of subdivision (

a) of

Section and as defined by subdivision (

c) of

Section 60119, the county superintendent shall do all of the following: (

A) Prepare a report that specifically identifies and documents the areas or instances of noncompliance. (

B) Provide within five business days of the review, a copy of the report to the school district, as provided in subdivision (c), or, if applicable, provide a copy of the report to the school district within business days pursuant to subparagraph (

B) of paragraph (3). (

C) Provide the school district with the opportunity to remedy the deficiency. The county superintendent shall ensure that the deficiency is remedied no later than the second month of the school term. (

D) If the deficiency is not remedied as required pursuant to subparagraph (C), the county superintendent shall request the department to purchase the textbooks or instructional materials necessary to comply with the sufficiency requirement of this subdivision.

If the department purchases textbooks or instructional materials for the school district, the department shall issue a public statement at the first regularly scheduled meeting of the state board occurring immediately after the department receives the request of the county superintendent and that meets the applicable public notice requirements, indicating that the district superintendent and the governing board of the school district failed to provide pupils with sufficient textbooks or instructional materials as required by this subdivision.

Before purchasing the textbooks or instructional materials, the department shall consult with the school district to determine which textbooks or instructional materials to purchase. The amount of funds necessary for the purchase of the textbooks and materials is a loan to the school district receiving the textbooks or instructional materials. Unless the school district repays the amount owed based upon an agreed-upon repayment

schedule with the Superintendent, the Superintendent shall notify the Controller and the Controller shall deduct an amount equal to the total amount used to purchase the textbooks and materials from the next principal apportionment of the school district or from another apportionment of state funds.

(5) If the county superintendent of schools determines that there are insufficient textbooks or instructional materials pursuant to a resolution received in accordance with subparagraph (

A) of paragraph (2) of subdivision (

a) of

Section and as defined by subdivision (

c) of

Section 60119, or as a result of receiving a report of an unresolved complaint pursuant to subdivision (

e) of

Section or an audit exception pursuant to subdivision (

l) of

Section 41020, the county superintendent shall do both of the following: (

A) Provide the school district with the opportunity to remedy the deficiency. The county superintendent shall ensure that the deficiency is remedied no later than the second month of the school term. (

B) If the deficiency is not remedied as required pursuant to subparagraph (A), the county superintendent shall request the department to purchase the textbooks or instructional materials necessary to comply with the sufficiency requirement of this subdivision.

If the department purchases the textbooks or instructional materials for the school district, the department shall issue a public statement at the first regularly scheduled meeting of the state board occurring immediately after the department receives the request of the county superintendent and that meets the applicable public notice requirements, indicating that the district superintendent and the governing board of the school district failed to provide pupils with sufficient textbooks or instructional materials as required by this subdivision.

Before purchasing the textbooks or instructional materials, the department shall consult with the school district when determining which textbooks or instructional materials to purchase. The amount of funds necessary for the purchase of the textbooks and materials is a loan to the school district receiving the textbooks or instructional materials. Unless the school district repays the amount owed based upon an agreed-upon repayment

schedule with the Superintendent, the Superintendent shall notify the Controller and the Controller shall deduct an amount equal to the total amount used to purchase the textbooks and materials from the next principal apportionment of the school district or from another apportionment of state funds. (

j) Preserve carefully all reports of school officers and teachers. (

k) Deliver to the county superintendent’s successor, at the close of the county superintendent’s official term, all records, books, documents, and papers belonging to the office, taking a receipt for them, which shall be filed with the department. ( l )

(1) Submit two reports during the fiscal year to the county board of education in accordance with the following: (

A) The first report shall cover the financial and budgetary status of the county office of education for the period ending October 31. The second report shall cover the period ending January 31. Both reports shall be reviewed by the county board of education and approved by the county superintendent no later than days after the close of the period being reported. (

B) As part of each report, the county superintendent shall certify in writing whether or not the county office of education is able to meet its financial obligations for the remainder of the fiscal year and, based on current forecasts, for two subsequent fiscal years. The certifications shall be classified as positive, qualified, or negative, pursuant to standards prescribed by the Superintendent, for purposes of determining subsequent state agency actions pursuant to

Section 1240.1. For purposes of this subdivision, a negative certification shall be assigned to a county office of education that, based upon current projections, will not meet its financial obligations for the remainder of the fiscal year or for the subsequent fiscal year. A qualified certification shall be assigned to a county office of education that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years.

A positive certification shall be assigned to a county office of education that will meet its financial obligations for the current fiscal year and subsequent two fiscal years. In accordance with those standards, the Superintendent may reclassify a certification. If a county office of education receives a negative certification, the Superintendent, or the Superintendent’s designee, may exercise the authority set forth in subdivision (

d) of

Section 1630. Copies of each certification, and of the report containing that certification, shall be sent to the Superintendent at the time the certification is submitted to the county board of education. Copies of each qualified or negative certification and the report containing that certification shall be sent to the Controller at the time the certification is submitted to the county board of education.

(2) All reports and certifications required under this subdivision shall be in a format or on forms prescribed by the Superintendent, and shall be based on standards and criteria for fiscal stability adopted by the state board pursuant to

Section 33127. The reports and supporting data shall be made available by the county superintendent to an interested party upon request.

(3) This subdivision does not preclude the submission of additional budgetary or financial reports by the county superintendent to the county board of education or to the Superintendent.

(4) The county superintendent is not responsible for the fiscal oversight of the community colleges in the county, however, the county superintendent may perform financial services on behalf of those community colleges.

(5) A county office of education having a negative or qualified certification, or classified as qualified or negative by the Superintendent, shall continue to be classified as qualified or negative until the next report required under this subdivision is filed. (

m) If requested, act as agent for the purchase of supplies for the city and high school districts of that county. (

n) For purposes of

Section 44421.5, report to the Commission on Teacher Credentialing the identity of a certificated person who knowingly and willingly reports false fiscal expenditure data relative to the conduct of an educational program. This requirement applies only if, in the course of normal duties, the county superintendent discovers information that gives the county superintendent reasonable cause to believe that false fiscal expenditure data relative to the conduct of an educational program has been reported. (

o) If any activities authorized pursuant to this

section are found to be a state reimbursable mandate pursuant to

Section of

Article XIII B of the California Constitution, funding provided for school districts and county offices of education pursuant to Sections 2574, 2575, 42238.02, and 42238.03 shall be used to directly offset any mandated costs.

SEC. 3.

Section of the Education Code is amended to read: 14500. It is the intent of the Legislature in enacting this

chapter to promote accountability over public educational funding by establishing a new program to review and report on financial and compliance audits of school districts, educational joint powers authorities, county superintendents of schools, and charter schools. It is further the intent of the Legislature that the Controller shall have the primary responsibility for implementing and overseeing the program.

SEC. 4.

Section of the Education Code is amended to read: 14501. (

a) As used in this chapter, “financial and compliance audit” shall be consistent with the definition provided in the generally accepted government auditing standards promulgated by the United States Government Accountability Office. Financial and compliance audits conducted under this

chapter shall fulfill federal single audit requirements. (

b) For purposes of this chapter, the following

definitions apply: (1) “Compliance audit” means an audit that ascertains and verifies whether or not funds provided through apportionment, contract, or grant, either federal or state, have been properly disbursed and expended as required by law or regulation, or both, and includes the verification of each of the following, if applicable: (

A) Expenditure of funds in accordance with the local control and accountability plan adopted pursuant to

Article 4.5 (commencing with

Section 52059.5) of

Chapter 6.1 of Part of Division of Title 2. (

B) The reporting requirements for the sufficiency of textbooks or instructional materials, or both, as defined in

Section 60119. (

C) Teacher misassignments pursuant to

Section 44258.9. (

D) The accuracy of information reported on the School Accountability Report Card required by

Section 33126. (2) “Local educational agency” means a school district, educational joint powers authority, charter school, or county superintendent of schools. (

c) The requirements set forth in subparagraphs (

B) to (D), inclusive, of paragraph (1) of subdivision (

b) shall be added to the audit guide requirements pursuant to subdivision (

b) of

Section 14502.1.

SEC.

Section 14502.1 of the Education Code is amended to read: 14502.1. (

a) The Controller, in consultation with the Department of Finance and the department, shall develop a plan to review and report on financial and compliance audits. The plan shall commence with the 2003–04 fiscal year for audits of school districts, other local educational agencies, and the offices of county superintendents of schools.

The Controller, in consultation with the Department of Finance, the department, and representatives of the California School Boards Association, the California Association of School Business Officials, the California County Superintendents Educational Services Association, the California Teachers Association, the California Society of Certified Public Accountants, the California Charter Schools Association, the Charter Schools Development Center, the California School Employees Association, and the County Office Fiscal Crisis and Management Assistance Team, shall recommend the statements and other information to be included in the audit reports filed with the state, and shall propose the content of an audit guide to carry out the purposes of this chapter.

A supplement to the audit guide may be suggested in the audit year, following the above process, to address issues resulting from new legislation in that year that changes the conditions of apportionment. The proposed content of the audit guide and any supplement to the audit guide shall be submitted by the Controller to the Education Audit Appeals Panel for review and possible amendment. (

b) The audit guide and any supplement shall be adopted by the Education Audit Appeals Panel pursuant to the rulemaking procedures of the Administrative Procedure Act, as set forth in

Chapter 3.5 (commencing with

Section 11340) of Part of Division of Title of the Government Code. It is the intent of the Legislature that, for the 2003–04 fiscal year, the audit guide be adopted by July of the fiscal year to be audited. A supplemental audit guide may be adopted to address legislative changes to the conditions of apportionment. It is the intent of the Legislature that supplements be adopted before March of the audit year. Commencing with the 2004–05 fiscal year, and each fiscal year thereafter, the audit guide shall be adopted by July of the fiscal year to be audited.

A supplemental audit guide may be adopted to address legislative changes to the conditions of apportionment. The supplements shall be adopted before March of the audit year. To meet these goals and to ensure the accuracy of the audit guide, the process for adopting emergency regulations set forth in

Section 11346.1 of the Government Code may be followed to adopt the audit guide and supplemental audit guide. It is the intent of the Legislature that once the audit guide has been adopted for a fiscal year, as well as any supplement for that year, thereafter only suggested changes to the audit guide and any additional supplements need be adopted pursuant to the rulemaking procedures of the Administrative Procedure Act. The audit guide and any supplement shall be issued in booklet form and may be made available by any means deemed appropriate.

The Controller and consultants in the development of the suggested audit guide and any supplement shall work cooperatively on a timeline that will allow the Education Audit Appeals Panel to meet the July and March issuance dates. Consistent with current practices for development of the audit guide before the 2003–04 fiscal year, the Controller shall provide for the adoption of procedures and timetables for the development of the suggested audit guide, any supplement, and the format for additions, deletions, and revisions. (

c) For the audit of school districts or county offices of education electing to take formal action pursuant to Sections and 44929, the audit guide content proposed by the Controller shall include, but not be limited to, the following:

(1) The number and type of positions vacated.

(2) The age and service credit of the retirees receiving the additional service credit provided by Sections and 44929.

(3) A comparison of the salary and benefits of each retiree receiving the additional service credit with the salary and benefits of the replacement employee, if any.

(4) The resulting retirement cost, including interest, if any, and postretirement health care benefits costs, incurred by the employer. (

d) The Controller shall annually prepare a cost analysis, based on the information included in the audit reports for the prior fiscal year, to determine the net savings or costs resulting from formal actions taken by school districts and county offices of education pursuant to Sections and 44929, and shall report the results of the cost analysis to the Governor and the Legislature by April of each year. (

e) All costs incurred by the Controller to implement subdivision (

c) shall be absorbed by the Controller. (

f) On or before January 1, 2015, the Controller, in consultation with the State Allocation Board, the Department of Finance, and the department, shall submit content to the Education Audit Appeals Panel to be included in the audit guide, Standards and Procedures for Audits of California K-12 Local Educational Agencies beginning in the 2015–16 fiscal year, that is related to the financial and performance audits required for school facility projects, as described in

Section 15286.

SEC. 6.

Section of the Education Code is amended to read: 14503. Financial and compliance audits shall be performed in accordance with the generally accepted government auditing standards promulgated by the United States Government Accountability Office for financial and compliance audits and in accordance with the filing deadlines established pursuant to Sections and 41020.2. The audit guide prepared by the Controller shall be used in the performance of these audits until an audit guide is adopted by the Education Audit Appeals Panel pursuant to

Section 14502.1. When an audit guide is adopted by that panel, the adopted audit guide shall be used in the performance of these audits. Every audit report shall specifically and separately address each of the state program compliance requirements included in the audit guide, stating whether or not the district is in compliance with those requirements.

For each state program compliance requirement included in the audit guide, every audit report shall further state that the suggested audit procedures included in the audit guide for that requirement were followed in the making of the audit, if that is the case, or, if not, what other procedures were followed. If a local educational agency is not in compliance with a requirement that is a condition of eligibility for the receipt of state funds, the audit report shall include a statement of the number of units of average daily attendance, if any, that were inappropriately reported for apportionment.

SEC. 7.

Section of the Education Code is amended to read: 14504. (a)

(1) To determine the practicability and effectiveness of the audits and audit guide, the Controller shall, on an annual basis, review and monitor the audit reports performed by independent auditors. (2) (

A) The Controller shall determine whether audit reports are in conformance with the reporting provisions of

Section and shall notify each local educational agency, the responsible chartering authority, if applicable, the responsible county superintendent of schools, the Superintendent, the Department of Finance, and the auditor within six months of the audit report due date or the audit report issue date, whichever is later, regarding each determination. (

B) The local educational agency, the chartering authority, the county superintendent of schools, or the Superintendent contracting for the financial and compliance audit shall include a statement that will provide the Controller access to audit working papers. (

b) Commencing with the 2027–28 fiscal year, the audit guide developed by the Controller and adopted by the Education Audit Appeals Panel pursuant to

Section 14502.1 shall include an appendix with the Controller’s desk review checklist that is used to determine whether audit reports are in conformance with the reporting requirements of

Section 14503. The Controller’s desk review checklist shall focus on elements of reporting that are material, whether qualitative or quantitative, and areas with a higher risk of error or misstatement.

SEC.

Section 14504.2 of the Education Code is amended to read: 14504.2. (

a) The Controller may perform quality control reviews of audit working papers to determine whether audits are performed in conformity with

Section 14503. The Department of Finance or the Superintendent may refer an independent auditor of a local educational agency to the Controller for a review pursuant to this

section if the Department of Finance or the Superintendent finds that an audit of a local educational agency was conducted in a manner that may constitute noncompliance with

Section 14503. The Controller shall communicate the results of the Controller’s reviews to the entity that referred the independent auditor to the Controller, the independent auditor, and the local educational agency for which the audit was performed, and shall review the Controller’s findings with the independent auditor. (b)

(1) Prior to the performance of any quality control reviews, the Controller shall develop and publish guidelines and standards for those reviews. Pursuant to the development of those guidelines and standards, the Controller shall provide opportunity for public comment.

(2) The Controller shall establish and publish as part of the audit guide a weighted risk-based criteria that considers auditor experience and quality factors in determining which audit engagements shall undergo a quality control review. Criteria shall primarily include, but not be limited to, all of the following: (

A) Audit reports that were found to have material nonconformance to the reporting provisions of

Section through the Controller’s review. (

B) Audits conducted by an engagement partner who has not performed audits of local educational agencies in the preceding three years. (

C) Audits that are submitted after the due date established pursuant to subdivision (

k) of

Section 41020, or an approved extension date, whichever is later.

(3) If the quality control review of the Controller indicates that the audit was conducted in a manner that may constitute unprofessional conduct, as defined pursuant to

Section of the Business and Professions Code, including, but not limited to, gross negligence resulting in a material misstatement in the audit, the Controller shall refer the case to the California Board of Accountancy. If the California Board of Accountancy finds that the independent auditor conducted an audit in an unprofessional manner, the independent auditor is prohibited from performing any audit of a local educational agency for a period of three years, in addition to any other penalties that the California Board of Accountancy may impose. (

c) In any matter that is referred to the California Board of Accountancy under paragraph (3) of subdivision (b), the Controller may suspend the independent auditor from performing any local educational agency audits pending final disposition of the matter by the California Board of Accountancy if the Controller gives the independent auditor notice and an opportunity to respond to that suspension.

The independent auditor shall be given credit for any period of suspension if the California Board of Accountancy prohibits the independent auditor from performing audits of the local educational agency under paragraph (3) of subdivision (b). The Controller shall not suspend an independent auditor under this subdivision for a period of longer than three years. (

d) The county superintendent of schools, the school district, the charter school, the chartering authority, the Controller, or the Superintendent may refer an independent auditor of a local educational agency to the California Board of Accountancy for action described in paragraph (3) of subdivision (

b) if either of the following circumstances exist:

(1) An audit of a local educational agency was conducted in a manner that may constitute unprofessional conduct, as defined by

Section of the Business and Professions Code, including, but not limited to, gross negligence resulting in a material misstatement in the audit.

(2) Material deficiencies are discovered in the quality control review conducted pursuant to this section.

SEC. 9.

Section of the Education Code is amended to read: 14505. (a)

(1) The governing board or body of a local educational agency shall include both of the following provisions in their contracts for audits: (

A) A provision to withhold percent of the audit fee until the Controller certifies that the audit report conforms to the reporting provisions of

Section 14503. (

B) A provision to withhold percent of the audit fee for any subsequent year of a multiyear contract if the prior year’s audit report was not certified as conforming to the reporting provisions of

Section 14503. This provision shall include a statement that a multiyear contract will be null and void if a firm or individual is declared ineligible pursuant to subdivision (

c) of

Section 41020.5. The amount withheld is not payable unless payment is ordered by the California Board of Accountancy or the audit report for that subsequent year is certified by the Controller as conforming to the reporting provisions of

Section 14503.

(2) If the Controller has not provided a written certification that the audit report has conformed to the reporting provisions of

Section or a written rejection letter detailing the exceptions noted by the Controller’s review with instructions for corrections by the sixth month following the audit issue date, or the audit due date, whichever is later, the governing board or body of the local educational agency may release the amounts withheld in audit fees pursuant to paragraph (1). (

b) Within days from the date of receipt of written notification that the Controller refuses to certify an audit report as conforming to the reporting provisions of

Section 14503, an auditor or audit firm having a portion of an audit fee withheld pursuant to these provisions may file an appeal in writing with the California Board of Accountancy. The California Board of Accountancy shall complete an investigation of the appeal within days of the filing date and, on the basis of the investigation, do either of the following:

(1) Order the Controller to provide notification that the audit report conforms to the reporting provisions of

Section 14503.

(2) Schedule the appeal for a hearing, in which case the final action on the appeal shall be completed by the California Board of Accountancy within one year from the date of filing the appeal. (

c) If the California Board of Accountancy orders the Controller to provide notification pursuant to paragraph (1) of subdivision (b), the Controller shall notify the contracting local educational agency which shall then release the portion of the audit fee being withheld in accordance with this section.

SEC. 10.

Section of the Education Code is amended to read: 14506. The Controller shall conduct any additional audits that are necessary to carry out the Controller’s duties and responsibilities pursuant to this code and the Government Code. This

chapter does not authorize a local educational agency, or a subcontractor or subrecipient, to constrain, in any manner, the Controller from carrying out additional audits. To the extent that the required financial and compliance audits provide the Controller with the information necessary to carry out the Controller’s responsibilities, the Controller shall plan additional audits as appropriate to avoid unnecessary duplication of audit efforts.

In performing additional audits, the Controller shall, to the extent deemed appropriate under the circumstances, build upon the work performed during the required financial and compliance audit. The Controller shall not bill the local educational agency for the costs of these additional audits.

SEC. 11.

Section of the Education Code is amended to read: 14507. The Controller shall report to the Superintendent on or before June of each year in order to apprise the Superintendent of those local educational agencies that are not in compliance with the applicable statutes and regulations. The Controller’s report shall categorize audit exception by types and shall identify the reasons for the exceptions. The reasons may be the legislative intent or language is unclear or the administrative requirement is not feasible. The Controller shall make recommendations as to what action should be taken by the Superintendent.

Before issuing the report, the Controller shall allow each local educational agency that is specified in the report a reasonable period of time to review and comment on the

section of the report affecting that local educational agency.

SEC. 12.

Section of the Education Code is amended to read: 14508. Notwithstanding

Section 10231.5 of the Government Code, the Controller shall submit a report, consistent with

Section of the Government Code, to the Legislature on or before August of each year regarding any recommendations made to the Superintendent pursuant to

Section 14507.

SEC. 13.

Section of the Education Code is amended to read: 14509. The funding appropriated in Item 6100-161-0001 of the annual Budget Act for mental health services shall be subject to existing state and federal audit requirements. Audit procedures shall be included in the audit guide to review whether funding for educationally related mental health services pursuant to this item was used by local educational agencies for its intended purposes in the 2016–17 fiscal year. These audit procedures shall be included in future fiscal years if the addition of these procedures is recommended by the Controller pursuant to subdivision (

a) of

Section 14502.1. If any mental health audit findings are generated through this process, the Superintendent shall ensure that the local educational agency has either corrected or developed a plan of correction for state and federal mental health funds pursuant to subdivision (

o) of

Section 41020.

SEC.

Section 33309.5 is added to the Education Code , to read: 33309.5. (a) (1) (

A) The Office of the Education Inspector General is hereby established. The Education Inspector General shall be appointed by the Governor to a four-year term from a list of three qualified individuals nominated by the Joint Legislative Audit Committee pursuant to subparagraph (

B) and subject to confirmation by a majority of the membership of the Senate, without regard to political affiliation, and solely on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations. The Education Inspector General shall not be prevented from initiating, carrying out, or completing an audit or investigation, or from issuing a subpoena during the course of an audit or investigation. (

B) The Joint Legislative Audit Committee shall provide at least days’ notice that it is seeking applicants for nomination by providing notice in the Journals of the Senate and the Assembly and by advertising in appropriate newspapers and with nationally acknowledged professional journals and associations. Names for consideration by the Joint Legislative Audit Committee may be submitted by members of the Legislature, professional organizations, individuals, and other entities. The Legislature and the Governor may provide suggested qualifications to the Joint Legislative Audit Committee to consider when making its nominations.

(2) The Office of the Education Inspector General shall not be a subdivision of any other governmental entity.

(3) The Education Inspector General may not be removed from office by the Governor during that term, except for good cause. (

b) Subject to applicable law, the Education Inspector General shall select, appoint, and employ officers and employees necessary to carry out the functions of the office. In making these selections, the Education Inspector General shall ensure that those officers and employees have the requisite training and experience to enable the Education Inspector General to carry out their duties effectively. (c)

(1) For each fiscal year, the Education Inspector General shall provide the Department of Finance with the office’s proposed budget by September of each year. If the amount of the Education Inspector General’s proposed budget differs from the amount included in the Governor’s Budget, the Department of Finance shall provide a notification, no later than January of each year, to the chairs and vice chairs of the budget committees of both houses of the Legislature and the Legislative Analyst’s Office identifying the differences and explaining the reasons for the differences.

(2) The annual salary for the Education Inspector General shall be equal to that of the High-Speed Rail Authority Inspector General established pursuant to

Section of the Public Utilities Code. (b)</xhtml:p>"?> (

d) The Office of the Education Inspector General shall be responsible for all of the following:

(1) Conducting and supervising forensic audits and investigations of the programs and operations of the department, local educational agencies, and entities managing a charter school related to fraud, misappropriation, or other illegal practices. (2)<xhtml:span class="EnSpace"/>Providing leadership and coordination relating to, and recommending policies for, the prevention and detection of fraud and abuse in the programs and operations of the department, local educational agencies, and entities managing a charter school.</xhtml:p><xhtml:p>(3)<xhtml:span class="EnSpace"/>Providing a means for keeping the state board and the Legislature fully and currently informed about problems and deficiencies relating to the administration of</xhtml:p>"?> (2) (

A) Coordinating audits of local educational agencies completed by the Education Inspector General pursuant to paragraph (1) with audits completed pursuant to

Section 1241.5 and investigations by law enforcement. (

B) The Education Inspector General is authorized to coordinate and communicate with law enforcement and auditors conducting audits pursuant to

Section 1241.5.

(3) Annually reporting to the appropriate policy committees of the Legislature information on all of the following: (

A) Investigations of the programs and operations of the department, local educational agencies, and entities managing a charter school. (

B) The number of referrals and reports made pursuant to subparagraphs (

A) and (

B) of paragraph (4). (

C) The necessity for, and progress of, corrective actions that the Education Inspector General deems to be appropriate. (

D) Recommendations for statutory changes necessary to prevent fraud and misappropriation of funds. (4) (

A) Referring findings of fraud or other illegal activity to the local district attorney and the Attorney General. (

B) Reporting audit findings with a fiscal impact to the department and determining the associated cost and the average daily attendance disallowance. (C) (

i) If a finding involves a charter school, reporting the finding to the governing body of the charter school and the chartering authority, unless doing so would undermine or compromise further necessary investigations. (ii) If a finding involves a school district or county office of education, reporting the finding to the governing board of the school district or the county office of education, unless doing so would undermine or compromise further necessary investigations. (e) (1) (

A) A resident of California may report a concern of suspected fraud, misappropriation of public funds, or illegal practices by the department, local educational agencies, or entities managing a charter school to the Office of the Education Inspector General. (

B) A resident who reports a concern to the Office of the Education Inspector general shall have whistleblower protections against retaliation including protections provided pursuant to

Article 5 (commencing with

Section 44110) of

Chapter of Part and

Section 1102.5 of the Labor Code.

(2) A report made pursuant to paragraph (1) shall be provided in writing, including by electronic or online submission, and documented to the best ability of the person submitting the concern.

(3) A report made pursuant to paragraph (1) shall not be subject to a Public Records Act (Division 10 (commencing with

Section 7920.000) of Title of the Government Code) request until an investigation is concluded and made public. (

f) Investigations by the Office of the Education Inspector General may only be furthered upon a finding that there is reasonable suspicion to believe that improprieties have occurred. (g)

(1) On or before December 15, 2032, the Legislative Analyst’s Office shall submit a report, consistent with

Section of the Government Code, to the appropriate policy committees of the Legislature on the activities of the Office of the Education Inspector General, recommendations for the continuance of the office or improvements to the structure of the office. The report shall also include all of the following: (

A) The number of reports made to the Education Inspector General, the number of investigations and audits disaggregated by type of local educational agency and the number of investigations and audits of the department and entities managing a charter school. (

B) The number of referrals and reports made to the department, local district attorneys, and the Attorney General pursuant to subparagraphs (

A) and (

B) of paragraph (4) of subdivision (d). (

C) The extent to which findings from the Education Inspector General have resulted in the recovery of state funds due to fraud, misappropriation of funds, or other illegal practices.

(2) The Office of the Education Inspector General shall provide the Legislative Analyst’s Office with available information necessary to meet the requirements of paragraph (1). (c)</xhtml:p>"?> (

h) For purposes of this section, the following

definitions apply: (1) “Entity managing a charter school” has the same meaning as defined in subdivision (

a) of

Section 47604.1. (2) “Local educational agency” means a school district, county office of education, charter school, educational joint powers authority, or state special school.

SEC. 15.

Section of the Education Code is amended to read: 41020. (

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) A local educational agency shall post the local educational agency’s annual financial and compliance audits on its internet website. (c) (1) (

A) On or before May of each fiscal year, the governing board of each school district or educational joint powers authority shall either provide for an audit of all funds under the control of that school district or educational joint powers authority, including an audit of income and expenditures by source of funds, or shall make arrangements with the county superintendent of schools having jurisdiction over the school district or educational joint powers authority to provide for that auditing. (

B) A contract to perform the audit of a school district or educational joint powers authority 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 school district or educational joint powers authority. (2) (

A) On or before May of each fiscal year, the governing body of each charter school shall either provide for an audit of all funds under the control of the charter school, including an audit of income by source of funds, or shall make arrangements with the chartering authority to provide for that auditing. Except as provided in clause (ii) of subparagraph (B), an independent audit shall be separately conducted and reported for each charter school. (B) (

i) All charter schools shall be audited and subject to the applicable provisions of this section. (ii) Notwithstanding subparagraph (A), financial data for charter schools that are included in the school district or county office of education audit shall be presented separately in one of the following manners: (

I) As a major fund, when applicable. (II) As a supplementary balance sheet and statement of revenues, expenditures, and changes in fund balance. (III) As supplementary combining statements for charter schools that are accounted for in the General Fund or when multiple charter schools are included in the charter school fund.

(3) On or before May of each fiscal year, each county superintendent of schools shall either (

A) provide for an audit of all funds under their jurisdiction and control, including an audit of income and expenditures by source of funds, or (

B) make arrangements with the Controller to provide for that auditing. (

d) If the governing board of a school district or educational joint powers authority, the governing body of a charter school, or a county superintendent of schools pursuant to paragraph (3) of subdivision (

c) has not provided for an audit of the books and accounts of the local educational agency by April 1, one of the following shall apply, as applicable:

(1) For a school district or an educational joint powers authority, the county superintendent of schools having jurisdiction over the school district or educational joint powers authority shall provide for the audit.

(2) For a charter school, the chartering authority having jurisdiction over the charter school shall provide for the audit.

(3) For a county superintendent of schools, the Controller shall provide for the audit. (

e) An audit conducted pursuant to this

section shall comply fully with the Government Auditing Standards issued by the Comptroller General of the United States. (

f) Each audit conducted in accordance with this

section shall include all of the following:

(1) All funds, books, and accounts 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.

(2) An audit of pupil attendance procedures and other applicable compliance items as detailed in the audit guide adopted pursuant to

Section 14502.1.

(3) 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 of Division or, for a charter school,

Section 47606.5.

(4) Notwithstanding any other law, to the extent the governing body of a charter school engages in activities that are unrelated to the charter school, the financial and compliance audit required by this

section shall not apply with regard to those unrelated activities. (

g) 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. (h)

(1) The cost of an audit provided for by a county superintendent of schools for a school district or educational joint powers authority 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 or educational joint powers authority from school district or educational joint powers authority funds.

(2) The cost of an audit provided for by a chartering authority for a charter school shall be paid by the chartering authority and the chartering authority shall collect the pro rata share of the cost chargeable to each charter school from charter school funds.

(3) The cost of an audit provided for by the Controller for a county superintendent of schools shall be paid by the Controller and the Controller shall collect the pro rata share of the cost chargeable to each county superintendent of schools from the respective county school service fund.

(4) The cost of an audit provided for by a governing board or body of a local educational agency shall be paid from local educational agency funds. The audit of the funds under the jurisdiction and control of a county superintendent of schools shall be paid from the county school service fund. (i)

(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 on or before December 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 Audit Appeals 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 (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

Section 14503. (4) (A) (

i) Commencing with the 2027–28 fiscal year, and every two years thereafter, in order to be added to, or remain on, the Controller’s directory of certified public accountants and public accountants deemed qualified to conduct audits of local educational agencies, audit engagement partners and certified public accountants or public accountants responsible for local educational agency audits and audit staff who perform audit procedures of local educational agencies shall complete hours of continuing education that, at a minimum, covers both of the following: (

I) Training on the specific requirements included in the most current Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting. (II) Training on compliance topics that include, but are not limited to, pupil attendance, independent study, charter schools, if applicable, nonclassroom-based instruction, school calendars, and instructional minutes. (ii) Continuing education hours taken as part of the California Board of Accountancy license renewal requirements may be used to meet the requirements of clause (

i) if the continuing education is specific to local educational agencies and includes the training content described in subclauses (

I) and (II) of clause (i). (

B) Commencing with the 2027–28 fiscal year, in order to be added to, or remain on the Controller’s directory of certified public accountants and public accountants deemed qualified to conduct audits of local educational agencies, audit engagement partners, certified public accountant firms, and certified public accountants or public accountants responsible for local educational agency audits shall comply with both of the following: (i) (

I) Have demonstrated experience conducting financial and compliance audits for local educational agencies. (II) Audit engagement partners, certified public accountant firms, and certified public accountants or public accountants may perform a financial and compliance audit for a local educational agency during their first year of conducting those audits, provided the audit report receives a preissuance review, consistent with applicable professional standards on quality control, performed by an auditor that has demonstrated experience in conducting financial and compliance audits for local educational agencies. (ii) Have maintained compliance with the California Board of Accountancy requirements to keep applicable licenses in active status and good standing. (

C) The continuing education hours and prior experience required pursuant to this paragraph shall be evidenced by a certification to the Controller from the certified public accountant firms, the certified public accountant or public accountant, or the audit staff that the requirements have been met.

(5) The requirements of this subdivision shall apply to audits of local educational agencies regardless of whether the local educational agency is a governmental agency or a nonprofit organization. (6) (

A) A local educational agency and an auditor that is under contract with the local educational agency shall notify the chartering authority or the county superintendent of schools, as applicable, the Superintendent, and the Controller in the event that the auditor’s contract with the local educational agency is terminated or otherwise denied for renewal. The notification shall include the reason for the termination or denial for renewal and shall be made within calendar days of the effective date of that termination or nonrenewal. (B) (

i) Before accepting a new engagement for a local educational agency, auditors shall request the local educational agency to provide authorization for predecessor auditors to respond fully and without limitation to the successor auditor’s inquiries and request to examine work papers related to subparagraph (C). (ii) If the local educational agency refuses to authorize predecessor auditors to respond, or limits the response, the auditor shall inquire about the reasons and consider the implications of that refusal or limitation in deciding whether to accept the engagement. (iii) If the local educational agency provides permission for predecessor auditors to respond fully, the successor auditor shall make the following inquiries of the predecessor auditors: (

I) Their knowledge of information that might bear on the integrity of management of the local educational agency. (II) Whether there were any disagreements with management of the local educational agency regarding matters of accounting principles, financial reporting, compliance, or audit scope. (III) Whether there were any communications to management of the local educational agency regarding fraud, illegal acts, noncompliance, or internal control matters. (IV) The predecessor auditor’s understanding of the reason for the change of auditors. (

V) Any information relevant to the successor auditor’s risk assessments for the period being audited. (

C) The successor auditor may request to inspect work papers as needed to gain full context of any risks identified through inquiry or to perform necessary procedures on beginning balances. (j)

(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 of Division 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.” (k)

(1) On or before January 31, a report of each local educational agency audit for the preceding fiscal year shall be filed with specified entities, as follows: (

A) For school districts and educational joint powers authorities, with the county superintendent of schools of the county in which the local educational agency is located, the Superintendent, and the Controller. (

B) For charter schools, with its chartering authority, the Superintendent, the Controller, and the county superintendent of schools of the county in which the charter school is located, unless the county board of education of the county in which the charter school is located is the chartering authority. (

C) For county superintendents of schools, with the Superintendent and the Controller.

(2) The Superintendent shall make any adjustments necessary in future apportionments of all state funds to correct any audit exceptions revealed by those audit reports pursuant to

Section 41344. (l)

(1) 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 school district or educational joint powers authority under their jurisdiction related to attendance, inventory of equipment, internal control, teacher misassignments pursuant to

Section 44258.9, audit exceptions related to instructional materials and information reported on the school accountability report card pursuant to

Section 33126, and any miscellaneous items, and determining whether the exceptions have been either corrected or an acceptable plan of correction has been developed.

(2) Upon submission of the final audit report to the governing board of each school district or educational joint powers authority and subsequent receipt of the audit by the county superintendent of schools having jurisdiction over the school district or educational joint powers authority, the county superintendent of schools shall do all of the following: (

A) Review audit exceptions related to attendance, inventory of equipment, internal control, teacher misassignments pursuant to

Section 44258.9, audit exceptions related to instructional materials and information reported on the school accountability report card pursuant to

Section 33126, 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. (

B) 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 school district or educational joint powers authority and request the governing board of the school district or educational joint powers authority to provide to the county superintendent of schools a description of the corrections or plan of correction before April 15. (

C) 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 school district or educational joint powers authority to resubmit that portion of its response that is inadequate.

(3) Each county superintendent of schools shall certify to the Superintendent and the Controller, on or before June 15, that the county superintendent of schools’ staff has reviewed all audits of school districts or educational joint powers authorities under the county superintendent of schools’ jurisdiction for the prior fiscal year, that all exceptions that the county superintendent of schools was required to review were reviewed, and that all of those exceptions, except as otherwise noted in the certification, have been corrected by the school district or educational joint powers authority or that an acceptable plan of correction has been submitted to the county superintendent of schools.

In addition, the county superintendent of schools shall identify, by school district or educational joint powers authority, 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.

(4) In the audit of a school district or educational joint powers authority for a subsequent year, the auditor shall review the correction or plan or plans of correction submitted by the school district or educational joint powers authority to determine if the exceptions have been resolved. If an exception has not been resolved, the auditor shall restate the exception in the audit report. After receiving a finding in an audit report, the Superintendent shall either consult with the school district or educational joint powers authority to resolve the exception or require the county superintendent of schools to follow up with the school district or educational joint powers authority. (m) (1) (

A) Each chartering authority shall be responsible for reviewing the audit exceptions contained in an audit of a charter school under its jurisdiction and determining whether the exceptions have been either corrected or an acceptable plan of correction has been developed. (

B) If a description of the corrections or plan of correction has not been provided as part of the audit required by this section, the chartering authority shall notify the charter school and request the governing body of the charter school to provide to the chartering authority a description of the correction or plan of correction before April 15. (

C) The chartering authority shall review the description of the correction or plan of correction and determine its adequacy. If the description of the correction or plan of correction is not adequate, the chartering authority shall require the charter school to resubmit that portion of its response that is inadequate. (2) (

A) Except as provided in subparagraph (B), each chartering authority shall certify to the county superintendent of schools of the county in which the charter school is located, on or before May 15, that the chartering authority has done all of the following for the prior fiscal year: (

i) Reviewed all audits of charter schools under its jurisdiction. (ii) Reviewed all exceptions that the charter school was required to review were reviewed, and that all of those exceptions, except as otherwise noted in the certification, have been corrected by the charter school or that an acceptable plan of correction has been submitted to the chartering authority. (iii) Ensure that chartering authorities have certified that the charter schools they authorize have corrected or developed a plan of correction for exceptions identified in the audit report. (iv) Identified any attendance-related audit exception or exceptions involving state funds and required the charter school to submit appropriate reporting forms for processing by the Superintendent. (

B) Notwithstanding subparagraph (A), if the county board of education of the county in which the charter school is located is the chartering authority, the county board of education shall certify to the Superintendent, on or before June 15, that the county superintendent of schools has done all of the following for the prior fiscal year: (

i) Reviewed all audits of charter schools under its jurisdiction. (ii) Reviewed all exceptions that the charter school was required to review were reviewed, and that all of those exceptions, except as otherwise noted in the certification, have been corrected by the charter school or that an acceptable plan of correction has been submitted to the chartering authority. (iii) Identified any attendance-related audit exception or exceptions involving state funds and required the charter school to submit appropriate reporting forms for processing by the Superintendent. (3) (

A) In the audit of a charter school for a subsequent year, the auditor shall review the correction or plan or plans of correction submitted by the charter school to determine if the exceptions have been resolved. (B) (

i) Except as provided in subparagraph (C), if the exceptions identified in subparagraph (

A) have not been corrected, the auditor shall restate the exception in the audit report. (ii) After receiving a finding in an audit report pursuant to clause (i), the county superintendent of schools shall either consult with the charter school to resolve the exception or require the chartering authority to follow up with the charter school. (C) (

i) Notwithstanding subparagraph (B), if the exceptions identified in subparagraph (

A) have not been corrected and the county board of education of the county in which the charter school is located is the chartering authority, the auditor shall restate the exception in the audit report. (ii) After receiving an audit report pursuant to clause (i), the Superintendent shall consult with the charter school to resolve the exception or shall require the county board of education as the chartering authority to follow up with the charter school. (4) (

A) In the audit of a county superintendent of schools for a subsequent year, the auditor shall review the correction or plan or plans of correction submitted by the county superintendent of schools to determine if the exceptions have been resolved. (

B) If the exceptions identified in subparagraph (

A) have not been resolved, the auditor shall immediately notify the Superintendent and restate the exception in the audit report. (n)

(1) The Superintendent shall review the audit exceptions contained in an audit of a county superintendent of schools and shall determine whether the exceptions have been corrected or an acceptable plan of correction has been developed.

(2) After receiving a final audit report of a county superintendent of schools or the county board of education, the Superintendent shall do all of the following: (

A) Review audit exceptions, including attendance exceptions or issues, that shall include, but not be limited to, those related to local control funding formula allocations pursuant to

Chapter 12.5 (commencing with

Section 2574) of Part of Division of Title and those related to independent study. (

B) Notify the county superintendent of schools and request the county superintendent of schools to provide to the Superintendent a description of the corrections or plan of correction no later than calendar days after the Superintendent’s notification if a description of the correction or plan of correction has not been provided as part of the audit required by this section. (

C) 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, require the county superintendent of schools to resubmit that portion of its response that is inadequate. (o)

(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 June 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 or body 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). (

p) 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 chartering authorities, 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 chartering authorities and county superintendents of schools, perform a followup of the audit resolution process of those chartering authorities and county superintendents of schools, and report the results of that followup to the Superintendent, the chartering authorities, and the county superintendents of schools that were reviewed. (

q) 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. (

r) If a governing board or body of a local educational agency, chartering authority, 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. (

s) Audits of regional occupational centers and programs are subject to this section. (

t) This

section does not authorize examination of, or reports on, the curriculum used or provided for in any local educational agency. (

u) 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 accordance with the generally accepted government auditing standards promulgated by the United States General Accountability Office. (

v) For purposes of this section, “local educational agency” means a school district, educational joint powers authority, county superintendent of schools, or charter school.

SEC.

Section 41020.2 of the Education Code is amended to read: 41020.2. (a)

(1) If the governing board of a school district or educational joint powers authority has entered into a contract for an independent audit of its financial statements in accordance with

Section and the audited financial statements have not been filed with the county superintendent of schools on or before the due date established under

Section 41020, the county superintendent of schools shall investigate the causes for the delay and initiate one of the actions described in subdivision (

c) that will provide the required audited financial statements in the most effective manner. (2) (

A) If the governing body of a charter school has entered into a contract for an independent audit of its financial statements in accordance with

Section and the audited financial statements have not been filed with the chartering authority on or before the due date established under

Section 41020, the chartering authority shall investigate the causes for the delay and initiate one of the actions described in subdivision (

c) that will provide the required audited financial statements in the most effective manner. (

B) If a charter school has an approved audit extension pursuant to subdivision (b), a failure to file an audit on or before the legal deadline shall not be a cause for or contributing justification for charter nonrenewal or revocation. Failure to file an audit with the chartering authority on or before the legal deadline due to the inability of a charter school to contract for an audit due to market conditions of available auditors shall not be a cause for or contributing justification for charter nonrenewal or revocation.

(3) If the county superintendent of schools has entered into a contract for an independent audit of its financial statements in accordance with

Section and the audited financial statements have not been filed with the Superintendent and the Controller on or before the due date established under

Section 41020, the Superintendent shall investigate the causes for the delay and initiate one of the actions described in subdivision (

c) that will provide the required audited financial statements in the most effective manner. (b) (1) (A) (

i) The county superintendent of schools or chartering authority may, after consultation with the governing board or body of the local educational agency and the auditors under contract to the local educational agency, and with the consent of the Controller’s office and the Superintendent, grant an appropriate extension for the completion of the audit and the filing of the audited financial statements.

An extension does not waive the legal deadline, but permits the filing of the report after the deadline. (ii) If a charter school has an approved audit extension pursuant to this subdivision, a failure to file an audit on or before the legal deadline shall not be a cause for or contributing justification for charter nonrenewal or revocation.

Failure to file an audit with the chartering authority on or before the legal deadline due to the inability of a charter school to contract for an audit due to market conditions of available auditors shall not be a cause for or contributing justification for charter nonrenewal or revocation. (

B) As applicable pursuant to subdivision (a), the Controller may, after consultation with the county board of education and the auditors under contract to the county board of education for the county office of education or for a charter school where the county board of education of the county in which the charter school is located is the chartering authority, and with the consent of the Superintendent, grant an appropriate extension for the completion of the audit and the filing of the audited financial statements. An extension does not waive the legal deadline, but permits the filing of the report after the deadline.

(2) An extension granted pursuant to this subdivision shall be appropriate if the extension adheres to all of the following requirements: (

A) The local educational agency and the auditor have certified that the audit cannot be completed on time due to unforeseen circumstances or complex situations. (

B) An extension shall be the shortest amount of time reasonable given the extenuating circumstances justifying the extension. (

C) Extensions shall be in increments of no longer than calendar days. (

D) Extensions shall not be granted past March 31.

(3) As applicable pursuant to subdivision (a), the county superintendent of schools or chartering authority may, after consultation with the governing board or body of a local educational agency, the auditors under contract to the local educational agency and the Controller’s office, contract with another qualified certified public accountant or public accountant to obtain the required audited financial statements and charge the cost of the audit to the funds of the local educational agency.

The county superintendent of schools or chartering authority or the Controller shall, to the extent feasible, assist the local educational agency in initiating action to avoid payment to the auditors under contract who did not complete the original audit.

(4) As applicable pursuant to subdivision (a), the county superintendent of schools, chartering authority, or Superintendent, may request the Controller’s office to investigate the situation and initiate action as provided in subdivision (c). (c)

(1) If the audited financial statements required by

Section have not been filed by a local educational agency with the Controller’s office on or before the due date established under

Section 41020, the Controller’s office shall determine the most advantageous method of obtaining the required audited financial statements. The Controller’s office may, after consultation with the governing board or body of the local educational agency and the auditor under contract with the local educational agency, do any of the following: (

A) Accept the action of the county superintendent of schools, the chartering authority, or the Superintendent, permitted by subdivision (b). (

B) Conduct the audit and prepare the auditor’s report, using the staff available within that office and charge the cost of the audit to the next regular apportionment from the State School Fund to the local educational agency. (

C) Contract with any qualified certified public accountant or public accountant, using the appropriate contracting procedures, for the conduct of the audit and preparation of the audited financial statements and charge the cost of the audit to the next regular apportionment from the State School Fund to the local educational agency. (

D) Consistent with the limits described in paragraph (2) of subdivision (b), grant a reasonable extension of the time for filing the report if, in the judgment of the Controller’s office, this will provide the required audited financial statements within the shortest time period. The extension of the time for filing does not waive the legal deadline, but permits the filing of the report after the deadline.

(2) The Controller’s office shall consult with the governing board or body of the local educational agency, the auditors under contract to the local educational agency, and the county superintendent of schools or the chartering authority, as applicable, before making the determination of the method to be used in obtaining the audited financial statements. The Controller’s office shall, to the extent feasible, assist the local educational agency in initiating action to avoid payment to the auditors under contract who did not complete the original audit. (

d) Notwithstanding any extension granted under subdivision (

b) or subparagraph (

D) of paragraph (1) of subdivision (c), the Controller’s office may determine at any time after the due date for filing of audit reports established by

Section that the audited financial statements not yet filed with that office are delinquent and that the audit will be performed under subparagraph (

B) or (

C) of paragraph (1) of subdivision (c). (

e) If an extension has not been requested or granted and the audited financial statements required by

Section have not been filed by a local educational agency with the Controller’s office on or before the due date established under

Section 41020, the local educational agency and the auditors under contract with the local educational agency shall notify the chartering authority, the county superintendent of schools, the Superintendent, and the Controller that the audit filing is delayed, the reasons for the delay, and the estimated filing date. The notification shall be made no later than calendar days from the due date established under

Section 41020. (

f) The Controller shall notify the appropriate policy committees of the Legislature and the Department of Finance if local educational agencies are unable to contract for an audit due to market conditions of available auditors. (

g) By September 30, 2028, and every three years thereafter, the Controller shall, in consultation with the entities listed in

Section 14502.1, provide recommendations to the appropriate committees of the Legislature regarding outdated or ineffective audit requirements in statute. (

h) For purposes of this section, “local educational agency” means a school district, educational joint powers authority, county superintendent of schools, or charter school.

SEC.

Section 41020.3 of the Education Code is amended to read: 41020.3. By March of each year, or days after the issuance of an audit report, whichever is later, the governing board or body of each local educational agency shall review, at a public meeting, the annual audit of the local educational agency for the prior year, any audit exceptions identified in that audit, the recommendations or findings of any management letter issued by the auditor, and any description of correction or plans to correct any exceptions or management letter issue. This review shall be placed on the agenda of the meeting pursuant to

Section or 47604.1, as applicable.

SEC.

Section 41020.4 is added to the Education Code , to read: 41020.4. (

a) Commencing with the 2027–28 fiscal year Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting, the Controller shall include the instructions necessary to require all of the following: (1)<xhtml:span class="EnSpace"/>(A)<xhtml:span class="EnSpace"/>Schedule of pupil enrollment:

schedule of pupil enrollment by grade, month, category, and, if operating a multitrack year-round calendar, by track, including beginning enrollment, additions, subtractions, and transfers, reconciled to ending enrollment and categorized by classroom-based and independent study. Monthly enrollment shall be reported as the enrollment recorded on the last day of the school month, as that term is described in

Section 37201.</xhtml:p><xhtml:p>(B)<xhtml:span class="EnSpace"/>For charter schools, require auditors to specifically disclose in the audit, and separately by notice to the chartering authority, county superintendent of schools, and the Superintendent, any instance where enrollment increases or decreases by more than percent at the end of the month as compared to the prior month.</xhtml:p><xhtml:p>(2)<xhtml:span class="EnSpace"/>(A)<xhtml:span class="EnSpace"/>Schedule of pupil attendance:

schedule of pupil attendance by grade, month, category, and, if operating a multitrack year-round calendar, by track, including the number of days instruction was offered and categorized by classroom-based and independent study.</xhtml:p><xhtml:p>(B)<xhtml:span class="EnSpace"/>For charter schools, require auditors to specifically disclose in the audit, and separately by notice to the chartering authority, county superintendent of schools, and the Superintendent, any instance where average daily attendance increases or decreases by more than percent at the end of the month as compared to the prior month.</xhtml:p><xhtml:p>(3)<xhtml:span class="EnSpace"/>Schedule of payments or transfers:

schedule of the largest aggregate payments or transfers of assets to organizations, determined by the value accumulated over the fiscal year, including to individuals, corporations, partnerships, nonprofit organizations, and other organizations. The

schedule shall also include the name of the payee and a brief description of the services or goods purchased.</xhtml:p><xhtml:p>(4)<xhtml:span class="EnSpace"/>Schedule of highest compensation:

schedule of compensation for the five highest paid employees, including by salary, deferred salary, retirement, health benefits, and any other contractually obligated payments earned by the employee during the fiscal year.</xhtml:p><xhtml:p>(5)<xhtml:span class="EnSpace"/>Board members and related management organizations: for charter schools, a disclosure of the charter school governing body’s composition, including member names and terms, if applicable, any related entity managing a charter school, as defined in

Section 47604.1, including governing body composition and governing body members and terms, if applicable, the members of executive management of any related entity managing a charter school, and any staff shared by the charter school and the related entity managing a charter school, or other related charter schools.</xhtml:p><xhtml:p>(6)<xhtml:span class="EnSpace"/>Related loans: for charter schools, a disclosure of any loans, including the terms of those loans, to or from the charter school and the charter school’s governing body members, related entity managing a charter school, as defined in

Section 47604.1, including governing board members or members of executive management of any related entity managing a charter school, or staff of the charter school or other related charter schools.</xhtml:p><xhtml:p>(7)<xhtml:span class="EnSpace"/>Schedule of charter school oversight expenses and activities:

schedule of calculation for charter school oversight fees, notating staff time and activities, including, but not limited to, fiscal review, schoolsite visits, documentation review, teacher misassignment review, audit review, pupil attendance and average daily attendance review, review of the percentage of classroom instruction provided, pupil-to-teacher ratio review, local control and accountability plan review, charter school renewal, and charter school material revisions.</xhtml:p>"?>

(1) For local educational agencies, as part of supplementary information, or other information as deemed applicable under generally accepted auditing standards, schedules of all of the following, as applicable: (

A) Pupil enrollment and attendance, including total pupil enrollment and attendance by track for each school month, and, if the local educational agency operates a multitrack year-round calendar, perform an analytical procedure and identify and disclose unusual increases or decreases in enrollment by month that are material and provide an opportunity for the local educational agency to provide an explanation in the note. (

B) The largest aggregate payments or transfers. (

C) For school districts and county offices of education, pupil-to-teacher ratios for independent study programs. (

D) Loans with related entities or employees. (

E) For charter schools, board members and related entities. (

F) The five highest paid employees.

(2) For nonclassroom-based charter schools, as part of supplementary information, or other information as deemed applicable under generally accepted auditing standards, additional instructions to require schedules of the components of funding determinations pursuant to

Section 47634.2: (

A) The components used to determine the pupil-to-teacher ratio and the resulting ratio. (

B) The components used to determine the percent of revenue