20250SB__041492ENR INTRODUCED 2025-02-14 AMENDED_SENATE 2025-03-26 AMENDED_SENATE 2025-05-01 AMENDED_ASSEMBLY 2025-07-08 AMENDED_ASSEMBLY 2025-07-18 AMENDED_ASSEMBLY 2025-09-02 AMENDED_ASSEMBLY 2025-09-09 PASSED_ASSEMBLY 2025-09-13 PASSED_SENATE 2025-09-13 ENROLLED 2025-09-17 2025 SB ENR Introduced by Senator Ashby LEAD_AUTHOR SENATE Ashby

An act to amend Sections 14500, 14502.1, 14504, 14504.2, 14505, 14506, 14507, 14508, 41020, 41020.2, 41020.3, 41020.5, 41020.8, 42238.024, 43521, 44258.9, 45037, 45125.1, 46211, 47604.1, 47604.3, 47604.32, 47604.5, 47605, 47605.1, 47612.5, 47612.7, 47613, 47614.5, 47616.7, 47634.2, 51744, 51745.6, 51747, and 51747.5 of, to amend and repeal

Section 47607.2 of, to add Sections 14500.5, 14502, 41020.4, 41020.6, 46149, 47600.1, 47604.6, 47605.05, and 47634.3 to, to add and repeal

Section 33309.5 of, to add

Article 7 (commencing with

Section 47670) to

Chapter of

Part 26.8 of Division of Title of, and to add

Article 11 (commencing with

Section 51820) and

Article 11.5 (commencing with

Section 51827) to

Chapter of Part of Division of Title of, the Education Code, and to amend

Section of the Government 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, and networks: flex-based instruction: local educational agency 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 report and provide recommendations to the Superintendent, instead of the department, 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.

Under existing law, once the Controller or county superintendent of schools makes a final determination that specified audits performed by a certified public accountant or public accountant were not performed in substantial conformity with provisions of an audit guide, or that the audit reports do not conform to the provisions of an audit guide, the certified public accountant or public accountant is ineligible to conduct specified audits for years.

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. The bill would extend the above-described rules related to the ineligibility of the certified public accountant or public accountant to audits of charter schools, as provided, and would additionally require the Controller to notify charter schools of those certified public accountants or public accountants determined to be ineligible to conduct audits, as provided.

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) The bill, until January 1, 2034, 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 majority of the Senate. The bill would require the Office of the Education Inspector General to, among other things, (

A) conduct and supervise forensic audits and investigations relating to the programs and operations of the department, local educational agencies, and entities managing a charter school 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 Controller, in consultation with the Department of Finance and the State Department of Education, to develop a plan to review and report on financial and compliance audits, and with representatives of other entities, to recommend the statements and other information to be included in the audit reports filed with the state by local educational agencies, and to propose the content of an audit guide. Existing law requires the audit guide to include specified content, as provided.

This bill would require the Controller to consult with representatives of additional specified entities and would require the audit guide to include a variety of additional content relating to audits of a local educational agency, as provided.

(4) 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.

(5) 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. This 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) 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.

(7) The Charter Schools Act of requires each charter school to transmit a copy of its annual, independent financial audit report for the preceding fiscal year to the county office of education, the Controller, and the State Department of Education by December of each year. The act authorizes the establishment, operation, and governance of charter schools. Existing law authorizes a charter school that has an approved charter to receive funding for nonclassroom-based instruction only if a determination for funding is made by the State Board of Education, as specified.

The act prohibits, from January 1, 2020, to January 1, 2026, inclusive, the approval of a petition for the establishment of a new charter school offering nonclassroom-based instruction, as specified. This bill would extend that prohibition to instead continue through June 30, 2026.

This bill would require the governing body of a charter school, by January 31, 2026, and by January of each year thereafter, to review, at a public meeting as an item on the agenda, the annual audit of the charter school for the prior fiscal 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. By imposing additional requirements on charter schools, the bill would impose a state-mandated local program.

The bill would replace the term “nonclassroom-based instruction” with “flex-based instruction” and define a “flex-based charter school” as a charter school that receives a determination for funding from the state board, as described above. The bill would also make numerous nonsubstantive and conforming changes.

(8) Existing law requires each chartering authority to, among other things, monitor the fiscal condition of each charter school under its authority. Existing law authorizes the state board to, based upon the recommendation of the Superintendent of Public Instruction, take appropriate action when the state board finds, among other things, illegal or substantially improper use of charter school funds for the personal benefit of any officer, director, or fiduciary of the charter school, as provided.

This bill would require that monitoring to also include a review of a sample of credit and debit card transactions of each charter school under its authority. The bill would require a chartering authority to provide the governing body of the charter school with feedback on any issues of concern identified in the review, as provided. If a chartering authority has reasonable suspicion that fraud, misappropriations of public funds, embezzlement, or other financial crimes, may be occurring, the bill would require the chartering authority to notify the State Department of Education and the county office of education.

The bill would require the state board, or the state board’s designee, to promptly investigate allegations of false claims or misappropriation of public funds by charter schools if there is probable cause to believe that those crimes have occurred. By imposing additional requirements on charter schools and local educational agencies acting as chartering authorities, the bill would impose a state-mandated local program.

(9) Existing law, until January 1, 2026, sets out performance standards and procedures for the renewal of charter schools. Existing law sets out revised standards and procedures that are operative on and after January 1, 2026. This bill would extend, until July 1, 2028, the operation of the performance standards and procedures for the renewal of charter schools that would otherwise be inoperative on January 1, 2026, and would delay the operation of the revised standards and procedures until July 1, 2028.

(10) Existing law provides for the apportionment of state funding to a charter school based on the average daily attendance that is generated by pupils engaged in nonclassroom-based instruction, as defined, in accordance with prescribed criteria and procedures.

This bill would revise and recast those provisions by, among other things, requiring the determination of funding to be on a percentage basis and require the Superintendent to implement the determination for funding by reducing the charter school’s reported average daily attendance by the percentage specified by the state board, as specified, and, commencing with the 2027–28 fiscal year, requiring the state board’s Advisory Commission on Charter Schools to recommend to the state board the approval of a funding determination request submitted by a charter school consistent with specified conditions.

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 flex-based charter schools, as defined, based on data from the prior school year.

(11) 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 authorizes a local educational agency to claim apportionment credit for independent study only to the extent of the time value of pupil work products.

This bill would require a local educational agency to maintain one complete pupil work product in each of specified subjects for a pupil enrolled in independent study for each of specified attendance periods, except as provided.

(12) The bill would establish the Charter Authorizer Mentor Grant Program to be administered by the California Collaborative for Educational Excellence for the purpose of providing competitive grants to qualified applicants to provide technical assistance to eligible chartering authorities of charter schools, as defined. 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.

(13) 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.

(14) Under the California Constitution, whenever the Legislature or a state agency mandates a new program or higher level of service on any local agency, the state is required to provide a subvention of funds to reimburse the local agency, with specified exceptions. Existing law, for purposes of this reimbursement, defines “local agency” to include any city, county, special district, authority, or other political subdivision of the state. This bill, for purposes of the above-described state reimbursement, would explicitly add any charter school to the definition of local agency.

(15) This bill would provide that the provisions of this bill are severable.

(16) 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.

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.

Section 14500.5 is added to the Education Code , to read: 14500.5. For purposes of this chapter, “local educational agency” means a school district, educational joint powers authority, charter school, or county superintendent of schools.

SEC. 3.

Section is added to the Education Code , to read: 14502. The county superintendent of schools, 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) of

Section 14504.2 if any of the following circumstances exist: (

a) 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. (

b) Material deficiencies are discovered in the quality control review conducted pursuant to

Section 14504.2. (

c) The continuing education requirements of

Section are not met.

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 School Employees Association, the California Society of Certified Public Accountants, the Charter Schools Development Center, the California Charter Schools 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. 5.

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 subdivision (

a) 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 subdivision (

a) 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 subdivision (

a) of

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 subdivision (

a) of

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 subdivision (

a) 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. 7.

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 subdivision (

a) 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 subdivision (

a) 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 subdivision (

a) 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 subdivision (

a) 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 subdivision (

a) 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. 8.

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. 9.

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. 10.

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.

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 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. This notification shall be provided no later than January of each year.

(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. (

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

(1) Conducting and supervising forensic audits and investigations for the purposes of identifying fraud, misappropriation of funds, or other illegal practices relating to the programs and operations of the department, local educational agencies, and entities managing a charter school. (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 on all of the following: (

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

B) The number of referrals made pursuant to subparagraph (

A) of paragraph (4) and the audit findings reported pursuant to subparagraph (

B) of paragraph (4). (

C) The necessity for, and progress of, corrective actions that the Education Inspector General deems to be appropriate. (4) (

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

B) Reporting audit findings with 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 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 to the department, local district attorneys, and the Attorney General pursuant to subparagraph (

A) 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). (

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. (

i) This

section shall remain in effect only until January 1, 2034, and as of that date is repealed.

SEC. 12.

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 subdivision (

a) of

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, flex-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 Government 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. By January 31, 2026, and by January each year thereafter, the governing body of a charter school shall review, at a public meeting, the annual audit of the charter school for the prior fiscal year, any audit exceptions identified in that audit, the recommendations or findings of any management letter issued by the auditor, and any description of corrections for, or plans to correct, any exceptions or management letter issue. The review shall be placed on the agenda of the meeting pursuant to the Ralph M. Brown Act (Chapter 9 (commencing with

Section 54950) of Part of Division of Title of the Government Code).

SEC.

Section 41020.5 of the Education Code is amended to read: 41020.5. (a)

(1) If the Controller determines by two consecutive quality control reviews pursuant to

Section 14504.2, or if the Superintendent, chartering authority, or a county superintendent of schools determines, that audits performed by a certified public accountant or public accountant under

Section were not performed in substantial conformity with provisions of the audit guide, or that the audit reports, including amended reports, submitted by February following the close of the fiscal year audited, for two consecutive years do not conform to provisions of the audit guide as required by

Section 14504, the Controller, the Superintendent, the chartering authority, or the county superintendent of schools, as appropriate, shall notify in writing the certified public accountant or public accountant and the California Board of Accountancy.

(2) If the certified public accountant or public accountant does not file an appeal in writing with the California Board of Accountancy within calendar days after receipt of the notification from the Controller, Superintendent, chartering authority, or county superintendent of schools, the determination of the Controller, Superintendent, chartering authority, or county superintendent of schools pursuant to this

section shall be final. (

b) If an appeal is filed with the California Board of Accountancy, the board shall complete an investigation of the appeal within days of the filing date. On the basis of the investigation, the board may do either of the following:

(1) Find that the determination of the Controller, Superintendent, chartering authority, or county superintendent of schools should not be upheld and has no effect.

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

c) If the determination of the Controller, Superintendent, chartering authority, or county superintendent of schools under subdivision (

a) becomes final, the certified public accountant or public accountant shall be ineligible to conduct audits under

Section for a period of three years, or, in the event of an appeal, for any period, and subject to the conditions, that may be ordered by the California Board of Accountancy. Not later than the first day of March of each year, the Controller shall notify each school district, charter school, and county office of education of those certified public accountants or public accountants determined to be ineligible under this section. School districts, charter schools, and county offices of education shall not use the audit services of a certified public accountant or public accountant ineligible under this section. (

d) For purposes of this section, “certified public accountant or public accountant” includes any person or firm entering into a contract to conduct an audit under

Section 41020. (

e) This

section does not preclude the California Board of Accountancy from taking any disciplinary action it deems appropriate under other laws.

SEC.

Section 41020.6 is added to the Education Code , to read: 41020.6. (

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 instructions necessary to require all of the following:

(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 or body members and related entities. (

F) The five highest paid employees.

(2) For flex-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 percentage of revenue expended on certificated staff salaries and benefits, and the resulting percentage. (

C) The components used to determine the percentage of revenue expended on instruction and related services, and the resulting percentage. (3) (

A) For flex-based charter schools that are part of a network, as defined in

Section 47634.3, additional instructions to require documents needed to verify the data in paragraph (2) to be provided to the auditor and the department contemporaneously and include the unique teacher identifier, full-time equivalency, and salary and benefit amounts on an electronic template developed by the department. (B) (

i) As an alternative to having the department perform the analysis for a network pursuant to paragraph (2) of subdivision (

d) of

Section 47634.2, flex-based charter schools that are part of a network, as defined in

Section 47634.3, may instead elect one of the following: (

I) A consolidated audit that includes the entire network. (II) A combined audit that includes the entire network. (III) A performance audit completed under the Government Auditing Standards for the funding determination components that includes the entire network. (ii) The auditor shall perform additional procedures to determine whether any of the components of paragraph (2) are inappropriately double counted in multiple charter schools across the network that adversely impact any of the components of paragraph (2). If such noncompliance is identified, the auditor shall report it as an audit finding. (

b) 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, but is not necessarily limited to, instructions necessary to require, at a minimum, that all of the following compliance procedures are performed in an audit of a local educational agency, except as otherwise limited:

(1) Compliance: compliance with professional accounting and auditing standards with an emphasis in the audit guide that audits of local educational agencies shall be conducted in compliance with Governmental Accounting Standards Board (GASB) or Financial Accounting Standards Board (FASB) statements and standards, as applicable, and generally accepted auditing standards (GAAS). (2) (

A) Sample selection: where representative samples of pupils, pupil work product, financial transactions, or other sampling are required to be performed and selected, the auditor shall independently identify the sample and make that selection in a manner that cannot be predicted, in accordance with professional standards. (

B) Auditor transaction sampling shall include a sample size appropriate for the type of local educational agency pursuant to the test of compliance sample table in the Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting. (

C) Sampling of pupil enrollment, attendance, and instructional minutes shall be representative of and inclusive of all the local education agencies’ tracks and grade spans as applicable and in consideration of materiality levels established in the Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting. (

D) For an audit of a locally funded charter school that is governed by a school district or county office of education and that is included in the school district’s or county office of education’s audit, the auditor shall ensure that all samples completed are representative of each of the local educational agencies included in the audit.

(3) Charter schools that are locally funded and governed by a school district or county office of education shall report charter school financial data separately from the general fund of the school district or county office of education. If the school district or county office of education audit includes more than one charter school, or if the charter school fund is not a major fund, the auditor shall also present financial data separately for each individual charter school in the supplemental

section or footnotes of the audit report.

(4) Using appropriate sampling techniques, verify pupil enrollment for independent study programs at local educational agencies and verify that a pupil’s residence meets applicable residency requirements based on documentation provided by the parent or guardian of the pupil, emancipated pupil, or other custodian of pupil, or, in the case of a pupil over years of age, by the pupil. (5) (

A) Chartering authority input: require auditors to consult with and inquire of the chartering authority during planning stages of the audit of a charter school authorized by the chartering authority to assist the auditor in identifying potential audit risks, including, but not limited to, fiscal and compliance areas that the charter school may not meet expectations, potential fraud risks, irregularities in observations and reporting, and other background information pertinent to the audit. (

B) County Office of Education input: require auditors to consult with and inquire of the county office of education during planning stages of the audit of a school district or educational joint powers authority to assist the auditor in identifying potential audit risks, including, but not limited to, fiscal and compliance areas that the school district or educational joint powers authority may not meet expectations, potential fraud risks, irregularities in observations and reporting, and other background information pertinent to the audit. (

C) Superintendent input: require auditors to consult with and inquire of the Superintendent during planning stages of the audit of a county office of education to assist the auditor in identifying potential audit risks, including, but not limited to, fiscal and compliance areas that the county office of education may not meet expectations, potential fraud risks, irregularities in observations and reporting, and other background information pertinent to the audit. (6) (

A) Related entity: determining if a related entity, such as a charter management organization, education management organization, or similar third party with financial, economic, or controlling membership interest, exists with the charter school, as defined by generally accepted accounting principles. A charter school that files a federal tax return shall include all related entities identified on the federal tax return. (

B) If a relationship is determined to exist pursuant to subparagraph (A), evaluate the level of the relationship to determine if it is material. For purposes of materiality, determine if the related party has a material financial, economic, or controlling interest in the charter school or can exercise material control, such as common management or board, majority voting interest, or sole corporate or statutory member or other arrangement. (7) (

A) Verification: For a charter school, verify if more than percent of the charter school’s total average daily attendance was generated through independent study, pursuant to

Section 47634.2. (

B) Verify the pupil-to-teacher ratio calculation. For independent study programs at school districts, county offices of education, and charter schools, verify the pupil-to-teacher ratios and calculations required pursuant to

Section 51745.6.

(8) For flex-based charter schools, do all of the following: (

A) Determine whether the charter school is in a network of flex-based charter schools, as defined in

Section 47634.3. (

B) If a determination is made pursuant to subparagraph (

A) that the flex-based charter school is in a network of flex-based charter schools, do all of the following: (

i) Identify whether the charter school employs teachers who are required to provide instruction to pupils enrolled in flex-based charter schools other than the charter school holding the teacher’s employment contract. (ii) Identify whether the charter school has teachers who are required to provide instruction to pupils who attend another flex-based charter school. (iii) Identify the other flex-based charter schools within the network of flex-based charter schools and report these results to the chartering authority of the charter school and the department, in a reporting method determined by the department.

(9) Funding determination thresholds: for flex-based charter schools, determine all of the following: (

A) Whether the charter school submitted a determination of funding request to the state board. (

B) The most recent approved funding determination made by the state board. (

C) Whether the charter school has met the pupil-to-teacher ratio pursuant to

Section 51745.6 and both the percentage of revenue expended on certificated staff salaries and benefits, and the percentage of revenue expended on instruction and related services, included in the state board-approved determination of funding, in accordance with subdivision (

c) of

Section 47634.2. Verify the percentage of revenue expended on instruction and related services with detailed information and financial records necessary to determine the qualifying expenditures consistent with the definition of instruction and related services in

Section 47634.2.

(10) Payments: select a sample of all payments and verify that those payments are legal and have proper authorization. The sampling shall include, but not be limited to, payments obtained through credit card statements, debit card statements, other electronic payment methods, and bank statements.

(11) Identify any transfers of funds or assets to other individuals or organizations that exceed one million dollars ($1,000,000) or percent of the local educational agency’s total revenue and other sources, whichever is less, together with a written explanation from the local educational agency regarding the local educational agency’s purpose for each of those expenditures.

(12) Charter School Oversight: Ensure the chartering authority has documentation of completing the oversight tasks in subdivisions (a), (c), and (

d) of

Section 47604.32 and teacher assignment monitoring pursuant to

Section 44258.9. (13) (

A) For schools that offer grades 10, 11, or 12, inclusive, at local educational agencies, perform an analytical procedure and identify unusual enrollment patterns between consecutive grade levels and pupils that change grade levels during the school year for that school and report as a note. (

B) Identify if a pupil advanced to grade without completing a California Assessment of Student Performance and Progress assessment in English language arts/literacy and mathematics using pupil cohort data and assessment data and report as a note. Report the total number of pupils disenrolled from the school after census day, in a note. A local educational agency shall provide the auditor necessary assessment data from the Test Operations Management System or subsequent successor system.

(14) Verify documentation of pupil work products, pursuant to clause (iii) of subparagraph (

A) of paragraph (2) of subdivision (

b) of

Section 51747.5. (

c) 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 a library of sample letters and schedules applicable to the Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting requirements for both school districts and charter schools as a means of guidance to auditors. (

d) For purposes of this section, “local educational agency” means a school district, county office of education, charter school, or educational joint powers authority.

SEC.

Section 41020.8 of the Education Code is amended to read: 41020.8. (

a) Notwithstanding any other law, the auditor conducting an annual audit pursuant to

Section shall, upon request, provide pertinent financial and compliance information related to the circumstances listed in subdivision (

b) to specified entities as follows:

(1) To the county superintendent of schools for a school district or educational joint powers authority within the county superintendent of schools’ jurisdiction.

(2) To the chartering authority or county superintendent of schools for a charter school if the county superintendent of schools is not the chartering authority.

(3) To the Superintendent and the Controller for any local educational agency. (

b) The circumstances described in subdivision (

a) include all of the following:

(1) The local educational agency has a financial audit finding, an audit finding for a material weakness or significant deficiency in internal controls, or a material noncompliance finding.

(2) The audit of a local educational agency contains an audit opinion other than unmodified.

(3) The audit has included a statement that there is substantial doubt about the local educational agency’s ability to continue as a going concern for a reasonable period of time.

(4) A determination has been made that a school district may not be able to meet its obligations of the current or subsequent fiscal year pursuant to

Section 42127.6.

(5) There is evidence that the school district is showing fiscal distress under the standards and criteria adopted in

Section pursuant to paragraph (1) of subdivision (

a) of

Section 42127.6.

(6) A school district has a negative unrestricted fund balance or negative cash balance pursuant to

Section 42127.5.

(7) A school district has received an emergency apportionment pursuant to

Article 2 (commencing with

Section 41320) or

Article 2.5 (commencing with

Section 41325) of

Chapter of Part of Division of Title 2.

(8) The budget of the school district, educational joint powers authority, or county superintendent of schools is disapproved or the school district or county superintendent of schools has received a negative certification on any budget or interim financial report, as defined in Sections 1240, 1622, 42127, and 42131, during the current or preceding fiscal year.

(9) A quality control review by the Controller is triggered pursuant to

Section 14504.2. (

c) Information provided by an auditor to the chartering authority, a county superintendent of schools, the Controller, or the Superintendent pursuant to this

section shall be submitted simultaneously to the named school district, charter school, or county superintendent of schools, as applicable, and shall not constitute a violation of auditor-client confidentiality.

SEC.

Section 42238.024 of the Education Code is amended to read: 42238.024. (

a) Commencing with the 2023–24 fiscal year, the sum of three hundred million dollars ($300,000,000) is hereby appropriated each fiscal year from the General Fund to the Superintendent for allocation for the Local Control Funding Formula Equity Multiplier apportionment in the manner and for the purposes set forth in this section. Commencing with the 2024–25 fiscal year, the amount appropriated pursuant to this subdivision shall be adjusted each fiscal year by the percentage change applied pursuant to paragraph (2) of subdivision (

d) of

Section 42238.02 for that fiscal year. (b)

(1) Funds appropriated pursuant to subdivision (

a) shall be made available by the Superintendent to eligible local educational agencies for allocation to schoolsites eligible pursuant to paragraph (2) for evidence-based services and supports for pupils, with a demonstration of how the resulting services and supports are increased or improved in comparison to services and supports that would have been provided at the schoolsites if the funding were not provided. Funds appropriated pursuant to subdivision (

a) shall supplement, not supplant, funding provided for these schoolsites for purposes of the local control funding formula pursuant to

Section 2574, 2575, or 42238.02, the Expanded Learning Opportunities Program pursuant to

Section 46120, the Literacy Coaches and Reading Specialists Grant Program established pursuant to

Section of

Chapter of the Statutes of 2022, and the California Community Schools Partnership Act (Chapter 6 (commencing with

Section 8900) of Part of Division of Title 1).

(2) For schoolsites with prior year nonstability rates greater than percent and prior year socioeconomically disadvantaged pupil rates of greater than percent, funding shall be allocated on a per-unit basis of the schoolsite’s total prior year adjusted cumulative enrollment. The per-unit funding amount is based on total statewide eligible enrollment and the amount of funds available, as reported in the stability rate data file.

(3) An eligible schoolsite shall not receive funding pursuant to paragraph (2) of less than fifty thousand dollars ($50,000), adjusted each fiscal year by percentage change applied pursuant to paragraph (2) of subdivision (

d) of

Section 42238.02 for that fiscal year.

(4) A schoolsite deemed eligible pursuant to paragraph (2) shall instead be deemed ineligible if it meets either of the following criteria: (

A) The schoolsite has closed in the year in which the funds are to be allocated, as reported pursuant to paragraph (2) of subdivision (

f) of

Section 60900. (

B) Commencing with the 2024–25 fiscal year, the local educational agency generated funding for a schoolsite pursuant to paragraph (2) due to a pupil being enrolled in the school district office.

(5) Unspent funds from any fiscal year provided to a local educational agency with a schoolsite that has closed, as reported pursuant to paragraph (2) of subdivision (

f) of

Section 60900, shall be returned to the department. Local educational agencies shall report the total amount of unspent funds in accordance with instructions and forms prescribed and furnished by the Superintendent. (

c) For purposes of this section, the following

definitions apply: (1) “Eligible local educational agency” means a school district, county office of education, or charter school that generates a local control funding formula entitlement pursuant to Sections 2574, 2575, or 42238.02, excluding a charter school classified as a flex-based charter school as of the prior fiscal year’s second principal apportionment certification pursuant to

Section 47612.5. (2) “Nonstability rate” means the percentage of pupils who are either enrolled for less than continuous days between July and June of the prior school year, or exited from a school between July and June of the prior school year due to either truancy, expulsion, or for unknown reasons and without stable subsequent enrollment at another school as identified in the stability rate data file. (3) “Prior year adjusted cumulative enrollment” means any enrollment with a start date in the school year in transitional kindergarten, kindergarten, and grades to 12, inclusive, as identified in the stability rate data file. (4) “Schoolsite” means an individual school in an eligible local educational agency, excluding the school district office. (5) “Socioeconomically disadvantaged pupil rate” means the percentage of pupils that meet any of the following criteria for the prior school year: (

A) Neither of the pupil’s parents has a high school diploma. (

B) The pupil is eligible for free or reduced-price meals under the federal National School Lunch Program, including by direct certification. (

C) The pupil is a migratory child for purposes of

Part C (commencing with

Section 6391) of Subchapter I of

Chapter of Title of the United States Code. (

D) The pupil is a homeless child or youth. (

E) The pupil is a foster youth. (

F) The pupil is enrolled in a county juvenile court school. (6) “Stability rate data file” means the initial publication of the annual file published by the department for the prior school year that will be used to determine a schoolsite’s prior year adjusted cumulative enrollment, nonstability rate, and socioeconomically disadvantaged rate for the purposes of calculating funding pursuant to this

section for an eligible local educational agency. (

d) Notwithstanding

Section 10231.5 of the Government Code, by February 1, 2025, and each February thereafter, the department, using existing resources, shall submit an annual report to the relevant policy and fiscal committees of the Legislature, the state board, and the Department of Finance that includes the following information on pupil outcomes at schoolsites that receive funding pursuant to this

section and statewide pupil outcomes:

(1) Pupil subgroup data captured in the stability rate data file, based on enrollment at the eligible schoolsite.

(2) Number of truant pupils captured in the stability rate data file and enrolled at the eligible schoolsite.

(3) Number of expelled pupils captured in the stability rate data file and enrolled at the eligible schoolsite.

(4) Number of pupils whose reasons for exit from the schoolsite are unknown, as captured in the stability rate data file, and enrolled at the eligible schoolsite.

(5) Performance of the eligible schoolsites on California School Dashboard state indicators, disaggregated by pupil subgroup. (

e) For purposes of making the computations required by

Section of

Article XVI of the California Constitution, the appropriations made by subdivision (

a) shall be deemed to be “General Fund revenues appropriated for school districts,” as defined in subdivision (

c) of

Section 41202, for the fiscal year for which the appropriation is made, and included within the “total allocations to school districts and community college districts from General Fund proceeds of taxes appropriated pursuant to

Article XIII B,” as defined in subdivision (

e) of

Section 41202, for the fiscal year for which the appropriation is made.

SEC. 20.

Section of the Education Code is amended to read: 43521. (

a) The sum of four billion five hundred forty-one million one hundred thirteen thousand dollars ($4,541,113,000) from the General Fund, and the sum of two billion sixteen million three hundred thirty thousand dollars ($2,016,330,000) from the Federal Trust Fund, are hereby appropriated to the Superintendent for apportionment in the 2020–21 fiscal year pursuant to this chapter.

Funds apportioned to eligible local educational agencies from the Federal Trust Fund pursuant to this subdivision shall be used for costs dating back to March 13, 2020, and shall be consistent with the terms, tracking and reporting requirements, and period of fund availability in accordance with federal law for all of the following:

(1) Six hundred seventy million nine hundred sixty-three thousand dollars ($670,963,000) from the Elementary and Secondary School Emergency Relief Fund pursuant to the federal Coronavirus Response and Relief Supplemental Appropriations Act, 2021, (Public Law 116-260) available for obligation through September 30, 2023, unless otherwise provided in federal law.

(2) One hundred fifty-three million nine hundred ninety-two thousand dollars ($153,992,000) from the Governor’s Emergency Education Relief Fund pursuant to the federal Coronavirus Response and Relief Supplemental Appropriations Act, 2021, (Public Law 116-260) available for obligation through September 30, 2023, unless otherwise provided in federal law.

(3) Four hundred thirty-seven million three hundred ninety thousand dollars ($437,390,000) from the Elementary and Secondary School Emergency Relief Fund pursuant to the federal American Rescue Plan Act of 2021 (Public Law 117-2) available for obligation through September 30, 2024, unless otherwise provided in federal law. For the purposes of

Section 2001(f)(4) of the federal American Rescue Plan Act of 2021 (Public Law 117-2), this constitutes the state’s reserve of funds for emergency needs.

(4) Seven hundred fifty-three million nine hundred eighty-five thousand dollars ($753,985,000) from the Elementary and Secondary School Emergency Relief Fund state level reservation to address learning loss, pursuant to the federal American Rescue Plan Act of 2021 (Public Law 117-2) available for obligation through September 30, 2024, unless otherwise provided in federal law. For the purposes of

Section 2001(f)(1) of the federal American Rescue Plan Act of 2021 (Public Law 117-2), this constitutes the state’s reserve of funds to carry out activities to address learning loss. (

b) Of the amount appropriated pursuant to subdivision (a), four billion five hundred fifty-seven million four hundred forty-three thousand dollars ($4,557,443,000) shall be apportioned to local educational agencies and state special schools in the following manner:

(1) A local educational agency shall receive one thousand dollars ($1,000) per homeless pupil enrolled in the 2020–21 fiscal year as reported in the California Longitudinal Pupil Achievement Data System as of the 2020–21 Fall Submission.

(2) A state special school shall receive seven hundred twenty-five dollars ($725) for each unit of average daily attendance as of the 2020–21 second principal apportionment certification. The average daily attendance for each state special school shall be deemed to be percent of the enrollment as reported in the California Longitudinal Pupil Achievement Data System as of the 2020–21 Fall Submission. (3) (

A) The funds remaining after the apportionments in paragraphs (1) and (2) shall be apportioned proportionally on the basis of a local educational agency’s local control funding formula entitlement determined as of the 2020–21 second principal apportionment certification, pursuant to Sections 42238.02 and 42238.025, or subdivision (

e) of

Section or subdivision (

a) of

Section 2575, as applicable. For purposes of this paragraph, entitlements shall include apportionments allocated pursuant to

Section and

Article 7 (commencing with

Section 48300) of

Chapter of

Part 27. (

B) Consistent with

Section 2576, a county office of education’s local control funding formula entitlement for purposes of subparagraph (

A) shall include funding that the Superintendent transferred to the county where a pupil is enrolled, equal to the amount calculated for the school district of residence pursuant to

Section 42238.02 for each unit of average daily attendance credited to the school district of residence as of the 2020–21 second principal apportionment certification. (c)

(1) Of the amount appropriated from the General Fund pursuant to subdivision (a), two billion dollars ($2,000,000,000) shall be apportioned to local educational agencies, excluding a charter school classified as a nonclassroom-based charter school as of the 2019–20 second principal apportionment certification pursuant to

Section 47612.5, as that

section read on that date, based on the apportionment methodology described in paragraph (3) of subdivision (b). (2) (

A) A local educational agency’s apportionment of funds pursuant to paragraph (1) shall be reduced pursuant to subparagraph (

B) if the local educational agency does not provide in-person instruction pursuant to paragraph (3). (B) (

i) From April 1, 2021, to May 15, 2021, inclusive, a local educational agency’s apportionment of funds pursuant to paragraph (1) shall be reduced by percent for each day of instruction provided for in the school calendar that the local educational agency does not provide in-person instruction pursuant to paragraph (3), as identified in the school calendar adopted for the 2020–21 school year that is in effect on March 1, 2021. (ii) If a local educational agency does not provide in-person instruction pursuant to paragraph (3) on or before May 15, 2021, it shall forfeit all funds apportioned pursuant to paragraph (1). (iii) If a local educational agency does not offer continuous in-person instruction for pupils pursuant to subparagraphs (

A) to (C), inclusive, of paragraph (3) from when it commences offering in-person instruction through the end of the scheduled 2020–21 school year, unless otherwise ordered by a state or local health officer, it shall forfeit all funds apportioned pursuant to paragraph (1). The scheduled school year is the adopted school calendar for the 2020–21 school year that is in effect on March 1, 2021.

(3) For purposes of this subdivision, a local educational agency shall be considered to be offering in-person instruction if it does at least all of the following: (

A) For a local educational agency in a county in the purple tier pursuant to the State Department of Public Health’s Blueprint for a Safer Economy that is neither open nor eligible to open as defined in the COVID-19 industry sector guidance for schools and school-based programs, the local edu