text:
(a) It is the intent of the Legislature to encourage sound fiscal management practices among local educational agencies for the most efficient and effective use of public funds for the education of children in California by strengthening fiscal accountability at the school district, county, and state levels.

(b) 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 1 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 1 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 and expenditures 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 1 of each fiscal year, each county superintendent of schools shall either provide for an audit of all funds under their jurisdiction and control, including an audit of income and expenditures by source of funds, or shall 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 paragraphs (1) to (3), inclusive, of subdivision (c), has not provided for an audit of the books and accounts of the local educational agency by May 1, one of the following shall apply, as applicable, and in sufficient time to ensure compliance with the deadline established in subdivision (k):

(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 generally accepted government auditing standards promulgated by the United States Government Accountability Office.

(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 28 of Division 4 or, for a charter school, Section 47606.5.

(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 31 of each year.

(2) Commencing with the 2003–04 fiscal year and except as provided in subdivision (d) of Section 41320.1, it is unlawful for a public accounting firm to provide audit services to a local educational agency if the lead audit partner, or coordinating audit partner, having primary responsibility for the audit, or the audit partner responsible for reviewing the audit, has performed audit services for that local educational agency in each of the six previous fiscal years. The Education Audit Appeals Panel may waive this requirement if the panel finds that no otherwise eligible auditor is available to perform the audit.

(3) It is the intent of the Legislature that, notwithstanding paragraph (2), the rotation within public accounting firms conform to provisions of the federal Sarbanes-Oxley Act of 2002 (15 U.S.C. Sec. 7201 et seq.), and upon release of the report required by the act of the Comptroller General of the United States addressing the mandatory rotation of registered public accounting firms, the Legislature intends to reconsider paragraph (2). In determining which certified public accountants and public accountants shall be included in the directory, the Controller shall use the following criteria:

(A) The certified public accountants or public accountants shall be in good standing as certified by the Board of Accountancy.

(B) The certified public accountants or public accountants, as a result of a quality control review conducted by the Controller pursuant to Section 14504.2, shall not have been found to have conducted an audit in a manner constituting noncompliance with Section 14503.

(4) (A) (i) Commencing with the 2027–28 fiscal year, and every two years thereafter, in order to be added to, or remain on, the Controller’s directory of certified public accountants and public accountants deemed qualified to conduct audits of local educational agencies, audit engagement partners and certified public accountants or public accountants responsible for local educational agency audits and audit staff who perform audit procedures of local educational agencies shall complete 16 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, school calendars, instructional minutes, and, if applicable, nonclassroom-based instruction.

(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 of two or more years conducting financial and compliance audits for local educational agencies.

(II) Notwithstanding subclause (I), 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 two years 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 firm, 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 30 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 9 of Division 1 of Title 1.

(B) A summary of audit exceptions and management improvement recommendations.

(C) An evaluation by the auditor on whether there is substantial doubt about the ability of the local educational agency to continue as a going concern for a reasonable period of time.

(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 of each year, 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 (e) of Section 41320.1, 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, 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 on or 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.

(2) Each county superintendent of schools shall certify to the Superintendent and the Controller, on or before June 15 of each year, 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 school district or educational joint powers authority to which the audit exceptions were directed to submit appropriate reporting forms for processing by the Superintendent.

(3) 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 on or 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 of each year, 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) Ensured 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) 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 instead certify to the Superintendent, on or before June 15 each year, 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) Ensured that the charter school 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.

(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 paragraph (1) of subdivision (k), 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 paragraph (1) of subdivision (k), 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 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 2 of Division 1 of Title 1 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 within 60 days, but not later than June 15, after the Superintendent has been notified that 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 15 have not been corrected.

(C) Repeat audit exceptions that are not assigned to a county superintendent of schools to correct.

(2) In addition, the Superintendent is responsible for ensuring that county superintendents of schools and each county board of education that serves as the governing board 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, on or before November 1, 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.

history: (History: Amended by Stats. 2026, Ch. 65, Sec. 39. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


kind: section

code: EDC

text: Reports of audits previously filed with the county clerk pursuant to Section 41020 shall be disposed of by the county clerk or returned to the respective superintendent of schools.

history: (History: Added by Stats. 1985, Ch. 1239, Sec. 3.)

division: 3. LOCAL ADMINISTRATION

part: 24. SCHOOL FINANCE

title: 2. ELEMENTARY AND SECONDARY EDUCATION

path: 2. ELEMENTARY AND SECONDARY EDUCATION > 3. LOCAL ADMINISTRATION > 24. SCHOOL FINANCE > 1. State Financial Management and Control > 2. Accounting Regulations, Budget Controls and Audits


text:
(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 41020 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) 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 41020 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.

(3) If the county superintendent of schools has entered into a contract for an independent audit of its financial statements in accordance with Section 41020 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) The county superintendent of schools may, after consultation with the governing board of the school district or educational joint powers authority and the auditors under contract to the school district or educational joint powers authority, 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 deadline established under Section 41020, but permits the filing of the report after the deadline.

(B) (i) The chartering authority may, after consultation with the governing body of the charter school and the auditors under contract to the charter school, and with the consent of the county superintendent of schools, 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 deadline established under Section 41020, but permits the filing of the report after the deadline.

(ii) If a charter school has an approved audit extension pursuant to this subparagraph, 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.

(C) The Controller may, after consultation with the county superintendent of schools and the auditors under contract to the county superintendent of schools 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 deadline established under Section 41020, 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 30 calendar days.

(D) Extensions shall not be granted past March 31 following the deadline established under Section 41020.

(3) (A) As applicable pursuant to subdivision (a), the county superintendent of schools or the chartering authority may, after consultation with the governing board or body of a school district, educational joint powers authority, or charter school, the auditors under contract to the school district, educational joint powers authority, or charter school, 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 school district, educational joint powers authority, or charter school. The county superintendent of schools or the chartering authority, or the Controller shall, to the extent feasible, assist the school district, educational joint powers authority, or charter school in initiating action to avoid payment to the auditors under contract who did not complete the original audit.

(B) As applicable pursuant to subdivision (a), the Controller may, after consultation with the county superintendent of schools, the auditors under contract to the county superintendent of schools, and the Superintendent, 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 county superintendent of schools. The Controller shall, to the extent feasible, assist the county superintendent of schools 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, the chartering authority, or the 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 41020 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 deadline established under Section 41020, 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 41020 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 41020 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 15 calendar days from the due date established under Section 41020.

(f) Notwithstanding Section 10231.5 of the Government Code, the Controller shall notify the appropriate policy committees of the Legislature, consistent with Section 9795 of the Government Code, and the Department of Finance if local educational agencies are unable to contract for an audit due to market conditions of available auditors.

(g) Notwithstanding Section 10231.5 of the Government Code, on or before 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, consistent with Section 9795 of the Government Code, 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.

history: (History: Amended by Stats. 2026, Ch. 65, Sec. 40. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

chapter: 1. State Financial Management and Control

article: 2. Accounting Regulations, Budget Controls and Audits


text:
(a) Within 45 days after the issuance of an audit report, 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.

(b) The review in subdivision (a) shall be placed on the agenda of the meeting pursuant to Section 35145 or 47604.1, as applicable. The action of the governing board or body of the local educational agency shall be to accept or reject the annual audit report.

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

history: (History: Amended by Stats. 2026, Ch. 65, Sec. 41. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
(a) (1) If the Controller determines by two consecutive quality control reviews pursuant to Section 14504.2, or if the Superintendent, a chartering authority, or a county superintendent of schools determines, that audits performed by a certified public accountant or public accountant under Section 41020 were not performed in substantial conformity with provisions of the audit guide, or that the audit reports, including amended reports, submitted by February 15 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 30 calendar days after receipt of the notification from the Controller, the Superintendent, the chartering authority, or the county superintendent of schools, the determination of the Controller, the Superintendent, the chartering authority, or the 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 90 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, the Superintendent, the chartering authority, or the 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, the Superintendent, the chartering authority, or the county superintendent of schools under subdivision (a) becomes final, the certified public accountant or public accountant shall be ineligible to conduct audits under Section 41020 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, educational joint powers authority, charter school, and county office of education of those certified public accountants or public accountants determined to be ineligible under this section. School districts, educational joint powers authorities, 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.

history: (History: Amended by Stats. 2026, Ch. 65, Sec. 42. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


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

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

(2) The largest 25 aggregate payments or transfers of assets to individuals or organizations determined by value accumulated over the fiscal year.

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

(4) Loans with related entities or employees.

(5) For charter schools, governing body members and related entities.

(6) The five highest-paid employees.

(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 annual audits of local educational agencies issued in compliance with the standards and requirements of the Governmental Accounting Standards Board (GASB) or Financial Accounting Standards Board (FASB), as applicable, shall be conducted in accordance with generally accepted auditing standards (GAAS) and generally accepted government auditing standards.

(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.

(E) Audits shall ensure that samples from all payment sources are selected and shall verify that those payments are legal and have proper authorization. The sampling shall include, but is not limited to, payments made through a variety of sources such as credit cards, debit cards, and other electronic payment methods and media, and bank statements.

(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 local educational agency 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 the pupil, or, in the case of a pupil over 18 years of age, by the pupil.

(5) (A) Chartering authority input for audits of a charter school: 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 for audits of a school district or educational joint powers authority: 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) Department input for audits of a county office of education: require auditors to consult with and inquire of the department 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 for audits of a charter school: 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 in the disclosure required by this paragraph.

(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 20 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) Identify any transfers of funds or assets to other individuals or organizations that exceed one million dollars ($1,000,000) or 10 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 transfers of funds or assets.

(9) Charter School Oversight: Ensure the chartering authority has documentation of completing the oversight tasks in Section 47604.32 and teacher assignment monitoring pursuant to Section 44258.9.

(10) (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 that shall not include personally identifiable information for any pupil.

(B) Identify if a pupil advanced to grade 12 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 the number of such pupils 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.

(11) 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.

history: (History: Added by Stats. 2026, Ch. 65, Sec. 43. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
(a) Notwithstanding any other law, the auditor conducting an annual audit pursuant to Section 41020 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 of a charter school or to the 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, including an apportionment significant audit exception.

(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 or educational joint powers authority 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 a school district is showing fiscal distress under the standards and criteria adopted in Section 33127 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 3 of Part 24 of Division 3 of Title 2.

(8) The budget of a school district, educational joint powers authority, or county superintendent of schools is disapproved or a 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.

(c) Information provided by an auditor to a 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, educational joint powers authority, charter school, or county superintendent of schools, as applicable, and shall not constitute a violation of auditor-client confidentiality.

history: (History: Repealed and added by Stats. 2026, Ch. 65, Sec. 45. (AB 126) Effective July 9, 2026.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
(a) Notwithstanding Section 41020, for the 2019–20 fiscal year, a local educational agency shall provide for an audit by July 15, 2020, and if a local educational agency fails to provide for an audit by July 15, 2020, the county office of education having jurisdiction over the local educational agency shall provide for an audit of the local educational agency by July 31, 2020.

(b) Notwithstanding subdivision (h) of Section 41020 or subdivision (m) of Section 47605, for audit reports for the 2019–20 fiscal year, a local educational agency shall file an annual audit report with the county superintendent of schools of the county in which the local educational agency is located, the Superintendent, the Controller, and, if applicable, to its chartering authority, by March 31, 2021, and notwithstanding subdivision (k) of Section 41020, the county superintendent of schools shall submit the required certification to the Superintendent and the Controller by July 15, 2021.

(c) Notwithstanding subdivision (k) of Section 41020, for audit reports for the 2018–19 fiscal year, a county superintendent of schools shall submit the required certification to the Superintendent and the Controller by July 15, 2020.

(d) Notwithstanding subdivision (d) of Section 41344, for audits certified by the Controller between March 1, 2020, and July 15, 2020, inclusive, a local educational agency may appeal a finding contained in a final audit report within 120 days of the date on which the local educational agency receives the final audit report resulting from an audit or review, or within 30 days of receiving a determination of a summary review pursuant to subdivision (e).

(e) Notwithstanding subdivision (d) of Section 41344.1, for audits certified between March 1, 2020, and July 15, 2020, inclusive, a local educational agency may request a summary review within 90 days of the date on which the local educational agency receives the final audit report resulting from an audit or review.

history: (History: Added by Stats. 2020, Ch. 24, Sec. 18. (SB 98) Effective June 29, 2020.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text: The governing board of every school district shall require each employee of the district, whose duty it is to handle funds of the district, and may, in its discretion, require employees of the district, whose duty it is to handle property of the district, to be bonded under a suitable bond indemnifying the district against loss. Such bond may be a name schedule bond, schedule position bond or blanket bond, and shall be in such amount and type as the board shall consider necessary and desirable. The boards shall pay from the funds of the district the cost of the premium necessary to provide the bond.

history: (History: Enacted by Stats. 1976, Ch. 1010.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
Except as provided in this section, any election held for the purpose permitting a school district to exceed the expenditure of school district funds fixed by the Constitution or by the statutes of the state shall be called, held, and conducted as nearly as possible as are elections for the issuance of school district bonds.

The notice of election shall contain only the following:

(a) The time and place or places of holding the election.

(b) The names of the officers appointed to conduct the election.

(c) The hours during the day in which the polls will be open.

(d) The amount by which it is proposed to increase the expenditures of the district during the school year.

(e) The total amount of proposed expenditures of the district, including the proposed increase, for the school year.

The ballots used at the election shall contain the following language: “Shall the total authorized expenditures of the district be increased from ____ (naming the sum) to ____ (naming the sum) for the school year ____ (naming the school year)?”

The hours during which the polls at the election are open shall be fixed in accordance with Section 14212 of the Elections Code.

history: (History: Amended by Stats. 1994, Ch. 923, Sec. 28. Effective January 1, 1995.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
(a) Any agency organized pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code, the parties of which consist solely of school districts and county offices of education, shall be subject to the same restrictions as are applicable to school districts and county offices of education, under that chapter, including the preparation of budget and financial statements required by Article 1 (commencing with Section 42100) and this article; the certifications required by Article 3 (commencing with Section 42130) of Chapter 6 of Part 24; the accounting and auditing requirements prescribed by Article 1 (commencing with Section 42100) and this article; and the expenditure and appropriation controls prescribed by Chapter 9 (commencing with Section 42600) of Part 24. This section does not apply to joint powers agreements that are for the performance of the powers described in Section 17567.

(b) Each agency described in subdivision (a) shall annually report to their participating school districts and county superintendents of schools on forms prescribed by the Superintendent of Public Instruction.

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 10. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text:
(a) (1) Commencing April 1, 2017, a local educational agency that receives any funds pursuant to the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1) shall annually report a detailed list of all expenditures of state funds, including interest, and of the local educational agency’s matching funds for completed projects until all state funds, including interest, all of the local educational agency’s matching funds, and savings achieved, including interest, pursuant to Section 17070.63, are expended in accordance with the requirements of the Leroy F. Greene School Facilities Act of 1998, associated regulations, and any accompanying grant agreement signed by a local educational agency. A local educational agency’s detailed list of expenditures shall identify expenditures on a project-by-project basis, reflect completed projects that were reimbursed within that fiscal year, and shall clearly indicate the list of projects that have been completed.

(2) For purposes of this section, the determination that a project is complete shall be in accordance with the regulations adopted pursuant to the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1).

(3) The total amount of interest earned on the state funds shall be reported on the final expenditure report upon completion of a project. For the purposes of determining the total amount of interest earned on the state funds, interest shall be considered to accrue from the time state funds are deposited in the local educational agency’s account until the time the local educational agency submits the final expenditure report to the Office of Public School Construction.

(4) Commencing April 1, 2017, a local educational agency participating in the school facilities program shall ensure that it retains all financial accounts, documents, and records necessary for an audit of completed projects pursuant to Section 16026 of Title 5 of the California Code of Regulations. For purposes of this paragraph and in compliance with any applicable state and federal standards, a local educational agency may maintain records electronically.

(5) Any project identified on a local educational agency’s detailed list of expenditures pursuant to paragraph (1) that is reported complete during the 2017–18 fiscal year shall be audited in accordance with the audit guide required by Section 14502.1 for the 2018–19 fiscal year. All other completed projects shall be audited in accordance with the audit guide required by Section 14502.1 for the fiscal year in which the project is reported complete.

(6) The audit described in this section shall be completed within one year of project completion as determined by Section 1859.104 of Title 2 of the California Code of Regulations.

(b) (1) Commencing with audits of the 2018–19 fiscal year, the Controller shall include instructions in the audit guide required by Section 14502.1 that include, but are not necessarily limited to, procedures for determining all of the following:

(A) Whether funds identified by a local educational agency on its detailed list of expenditures pursuant to paragraph (1) of subdivision (a) have been expended in accordance with the requirements of the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1), associated regulations, and any accompanying grant agreement signed by a local educational agency. Any funds not expended in accordance with these requirements shall be disallowed and considered an audit finding.

(B) That savings achieved, including interest, pursuant to Section 17070.63, are used for other high priority capital outlay purposes identified by the local educational agency or returned to the Office of Public School Construction, and are used in accordance with the requirements of the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1), associated regulations, and as specified in any accompanying grant agreement.

(C) Adjustments to the grant amounts received by a local educational agency for site acquisition costs based upon the local educational agency’s final approved expenditures as required pursuant to Sections 1859.105 and 1859.106 of Title 2 of the California Code of Regulations.

(D) Adjustments to the grant amounts received by a local educational agency associated with the substantial progress requirements reflected in the program reporting requirements pursuant to Section 1859.104 of Title 2 of the California Code of Regulations.

(2) Any amounts or adjustments identified pursuant to subparagraphs (C) and (D) of paragraph (1) shall be identified within a local educational agency’s audit, but shall not be considered an audit finding for purposes of this section.

(c) (1) The auditor conducting the audit pursuant to this section shall file the audit with the Controller within 60 days of the completion of the audit. The Controller shall be allowed access to audit working papers. Adjustments pursuant to paragraph (2) of subdivision (b) shall not be appealable to the Education Audit Appeals Panel pursuant to this section.

(2) Within 60 days of the receipt of the certified audit, and after determining that the audit conforms with the reporting standards contained in the audit guide, the Controller shall do both of the following:

(A) Provide the department a copy of the certified audit.

(B) Notify the Office of Public School Construction of any audit findings pursuant to this section and any amounts or adjustments identified pursuant to clause (iii) and provide the Office of Public School Construction with a copy of the certified audit identifying the amounts to be adjusted if, as a result of the audit conducted in accordance with the requirements of subdivisions (a) and (b), the auditor determines any of the following:

(i) A local educational agency has unspent funds for the project not identified as savings pursuant to Section 17070.63 that shall be returned pursuant to subparagraphs (C) and (D) of paragraph (1) of subdivision (b), and any accompanying grant agreement signed by a local educational agency.

(ii) A local educational agency is subject to an increase or decrease in funds provided pursuant to subparagraphs (C) and (D) of paragraph (1) of subdivision (b), and any accompanying grant agreement signed by a local educational agency.

(iii) A local educational agency did not expend funds in accordance with the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1) and any accompanying grant agreement signed by a local educational agency.

(3) Upon receipt of the certified audit, the Office of Public School Construction shall present any grant adjustments required pursuant to clauses (i) and (ii) of subparagraph (B) of paragraph (2) for a specified project to the State Allocation Board for an adjustment to the project apportionment. Funds identified for purposes of clauses (i) and (ii) of subparagraph (B) of paragraph (2) shall be apportioned from, or returned to, the appropriate funds, as established in the State Treasury pursuant to Section 17070.40 or 17070.41, as applicable. If a school district is required to return unspent funds, the fund source for returned funds shall be the county school facilities fund established pursuant to subdivision (a) of Section 17070.43.

(4) A local educational agency may appeal the audit finding pursuant to the timelines and process established in subdivision (d) of Section 41344. The procedures set out in subdivision (d) of Section 41344.1 do not apply to the audit required by this section.

(5) The Office of Public School Construction shall ensure that the local educational agency has corrected the audit finding by implementing a required penalty payment of funds equal to the amount of funds disallowed in the audit finding pursuant to the process specified in subdivision (d).

(d) (1) If, as the result of the audit, a local educational agency is required to pay funds pursuant to clause (iii) of subparagraph (B) of paragraph (2) of subdivision (c), the Office of Public School Construction shall recover the funds from the local educational agency.

(2) If the local educational agency has submitted an appeal to the Education Audit Appeals Panel pursuant to subdivision (d) of Section 41344, the Office of Public School Construction shall not recover funds until following the determination of the appeal.

(3) A local educational agency may use any local fund source to pay the disallowed amount pursuant to clause (iii) of subparagraph (B) of paragraph (2) of subdivision (c) so long as there is no legal prohibition regarding the use of those funds for this purpose.

(4) A local educational agency may request from the Office of Public School Construction a repayment plan within 90 days of receiving the final audit report, or within 30 days of withdrawing or receiving a final determination regarding an appeal pursuant to subdivision (d) of Section 41344 and subdivision (b) of Section 41344.1, as applicable. The Office of Public School Construction and the Director of Finance, or their designees, jointly shall establish a plan for payment. The payment plan shall be established in accordance with the following:

(A) If the executive officer of the Office of Public School Construction and the Director of Finance, in consultation with the department, concur that repayment of the disallowed amount in the current fiscal year would constitute a severe financial hardship for the local educational agency, they may jointly approve a plan of equal annual payments over a period of up to eight years. The plan may include interest on each year’s outstanding balance at the rate earned on the state’s Pooled Money Investment Account during that year. The executive officer of the Office of Public School Construction and the Director of Finance jointly shall establish this plan. At the time the local educational agency is notified, the Controller also shall be notified of the plan by the executive officer of the Office of Public School Construction. The Controller shall withhold the annual amount established pursuant to the plan from the local educational agency’s principal apportionment or Education Protection Account payments.

(B) Notwithstanding subparagraph (A), if the executive officer of the Office of Public School Construction and the Director of Finance, in consultation with the department, concur that repayment of the disallowed amount over an eight-year period would require the local educational agency to request an emergency apportionment pursuant to Article 2 (commencing with Section 41320) of, and Article 2.5 (commencing with Section 41325) of, Chapter 3, they may approve a plan of equal annual payments over a period of up to 20 years. The plan shall include interest on each year’s outstanding balance at the rate earned on the state’s Pooled Money Investment Account during that year. The Controller shall withhold the annual amount established pursuant to the plan from the local educational agency’s principal apportionment or Education Protection Account payments.

(C) If a payment plan submitted pursuant to this section is not approved by the executive officer of the Office of Public School Construction and the Director of Finance, in consultation with the department, or is not requested by the local educational agency, the executive officer of the Office of Public School Construction shall invoice the local educational agency for the entire disallowed amount. If the local educational agency does not remit payment for the invoice within 120 days of issuance, the executive officer of the Office of Public School Construction shall request that the Controller withhold the entire disallowed amount from the local educational agency’s principal apportionment or Education Protection Account payments.

(D) (i) Funds recovered by the executive officer of the Office of Public School Construction or withheld by the Controller pursuant to this section shall be deposited into the appropriate state school facilities fund, as established in the State Treasury pursuant to Section 17070.40 or 17070.41, as applicable.

(ii) Funds remitted to the Office of Public School Construction by a local educational agency from local fund sources, as authorized by paragraph (3), shall be deposited into the appropriate state school facilities fund, as established in the State Treasury pursuant to Section 17070.40 or 17070.41, as applicable.

(e) As used in this section, “audit or review” and “local educational agency” shall have the same meaning as the terms are defined in paragraphs (1) and (2) of subdivision (e) of Section 41344.

(f) The State Allocation Board shall not waive all or any part of this section, any grant agreement or provisions of a grant agreement signed by a local educational agency that receives any funds pursuant to the Leroy F. Greene School Facilities Act of 1998 (Chapter 12.5 (commencing with Section 17070.10) of Part 10 of Division 1 of Title 1), or any regulation adopted that implements a provision of this section.

(g) In any appeal filed pursuant to Section 41344 and this section, the Office of Public School Construction, the Department of Finance, and the department may timely move to intervene as a party.

(h) If the Office of Public School Construction chooses not to intervene in an appeal, the administrative law judge conducting the hearing, or the Education Audit Appeals Panel, may request that the Office of Public School Construction issue and file in the appeal an objective interpretation of any applicable law, regulation, or term of the grant agreement within 30 days of the request or such longer period as the administrative law judge or the Education Audit Appeals Panel deems reasonable. The Office of Public School Construction’s filing shall not argue or seek to resolve issues of fact, but may state how a particular law, regulation, or grant agreement term applies to competing factual contentions. The agent of the Office of Public School Construction shall be precluded from acting as a party once a request pursuant to this subdivision is made.

(i) Notwithstanding subdivision (a), this section shall not apply to any school facilities project that was apportioned before July 1, 2017.

history: (History: Amended by Stats. 2023, Ch. 48, Sec. 20. (SB 114) Effective July 10, 2023.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION


text: Any school district which receives bequests or gifts of money which is surplus money not required for the immediate necessities of the district may invest it pursuant to the provisions of this article.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund

path: 2. ELEMENTARY AND SECONDARY EDUCATION > 3. LOCAL ADMINISTRATION > 24. SCHOOL FINANCE > 1. State Financial Management and Control > 3. Foundation Fund


text: Any gift or bequest of money which is to be invested pursuant to this article shall be placed in a district special fund in the county treasury, to be designated as a Foundation Fund. If the gift or bequest of money is required to be used for specific purposes according to the terms of the gift or bequest, the governing board shall place the money in a separate account in the Foundation Fund, and may by resolution designate the separate account by the name that it shall be known, including in its name the term “Foundation Account.”

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 12. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text:
(a) The governing board of any school district may accept on behalf of, and in the name of, the district, gifts, donations, bequests, and devises that are made to the district or to or for the benefit of any school or college administered by the district. The gifts, donations, bequests, and devises may be made subject to conditions or restrictions that the governing board may prescribe.

(b) The money deposited in a separate account in the Foundation Fund shall be invested pursuant to this article or expended only for the purposes of the gift or bequest.

(c) If a gift of land has been accepted by the governing board of a school district upon condition or agreement that it be devoted to school purposes of the district, whether that condition or agreement is written or oral and whether the terms thereof are recited or referred to in any instrument executed in connection with the conveyance of the gift, and the board subsequently determines that the land cannot feasibly be utilized for any school purpose of the district, the board may cause it to be reconveyed to the donor without consideration to the district; provided that failure to do so shall not affect the rights of any bona fide purchaser or encumbrancer of the land.

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 13. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text:
The governing board of a school district which has placed funds in the Foundation Fund is hereby authorized to invest all or any part of those funds as it deems wise and expedient as follows:

(a) In the securities, warrants, or instruments of indebtedness specified by Section 53601 of the Government Code.

(b) In corporate securities other than corporate shares, provided that the amount of investment under this subdivision shall not exceed 50 percent of the amount invested under subdivision (a).

Any security, warrant, or instrument of indebtedness purchased pursuant to this section may be sold and the proceeds reinvested in similar securities, warrants, or instruments, or placed in the Foundation Fund.

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 14. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: The governing board of a school district may deposit such securities, warrants, or instruments purchased under Section 41033 for safekeeping pursuant to Section 41016.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: The governing board of a school district that invests money of the Foundation Fund pursuant to this article shall appoint an advisory committee equal in number to the number of members of the governing board. The committee shall be composed of qualified electors of the district and may include members of the governing board. Members of the committee shall serve without compensation.

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 15. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: The advisory committee shall advise the governing board as to the investments to be made pursuant to this article.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: The governing board shall adopt rules and regulations to effectuate the purposes of this article, not inconsistent with law.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: Except as may be otherwise provided in this article, other provisions of this chapter shall be applicable to the money placed in the Foundation Fund pursuant to this article.

history: (History: Amended by Stats. 2002, Ch. 1168, Sec. 16. Effective September 30, 2002.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 3. Foundation Fund


text: “County” or “counties” includes a city and county as specified in Section 92.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 4. Miscellaneous Provisions

path: 2. ELEMENTARY AND SECONDARY EDUCATION > 3. LOCAL ADMINISTRATION > 24. SCHOOL FINANCE > 1. State Financial Management and Control > 4. Miscellaneous Provisions


text:
Whenever the assessed valuation of a school district is reduced as a result of the operation of Section 992 of the Revenue and Taxation Code, the school district shall receive replacement revenue from the state for the loss of revenue to the district.

A school district shall be eligible for replacement revenue when the assessed valuation exempted as the result of the operation of Section 992 of the Revenue and Taxation Code is 30 percent or more of the district’s assessed valuation in the 1970–1971 fiscal year. A school district shall be ineligible for replacement revenue when its assessed valuation has increased 250 percent or more over the 1970–1971 fiscal year assessed valuation.

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 4. Miscellaneous Provisions


text:
Where a reference is made to “adults” in this division in the context of apportionments to school districts or county superintendents of schools, the reference shall be deemed to refer to persons 21 years of age or over notwithstanding any other provision of law.

Where a reference is made to “minors” in this division in the context of apportionments to school districts or county superintendents of schools, the reference shall be deemed to refer to persons under 21 years of age, notwithstanding Section 6500 of the Family Code or any other provision of law.

history: (History: Amended by Stats. 1994, Ch. 1269, Sec. 6.5. Effective January 1, 1995.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 4. Miscellaneous Provisions


text:
(a) The enactment of Article XIIIA of the California Constitution by the voters of California at the June 6, 1978, primary election severely reduced the property taxing authority of local school districts. The California Legislature has replaced that local property taxing authority with state revenues derived from state taxing authority. It is the intent of the Legislature that local property tax revenues replaced by state funds are to continue to be considered local effort for purposes of federal grants pursuant to Public Law 81-874.

(b) For purposes of computing federal grants pursuant to Public Law 81-874 which requires a local tax effort or maintenance of effort, the fiscal year 1977–78 shall be used as a base year. The percentage of local effort for fiscal year 1977–78 shall be calculated as follows:

(1) The total amount of state and local funds earned by school districts, as determined by Article 2 (commencing with Section 42230) of Chapter 7 of Part 24 as it read prior to repeal by Chapter 282 of the Statutes of 1979 shall be divided into the amount of local tax receipts including tax relief subventions.

(2) The resultant percentage shall be used as the percent of local effort or contribution.

history: (History: Added by Stats. 1980, Ch. 1354, Sec. 37.45. Effective September 30, 1980.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

article: 4. Miscellaneous Provisions


text:
(a) This chapter shall be known, and may be cited, as the John B. Mockler School Finance Act.

(b) The Legislature finds and declares that the California Constitution, as amended by “The Classroom Instructional Improvement and Accountability Act” as adopted by the voters on November 8, 1988, mandates that a specific minimum level of state General Fund revenues be guaranteed and applied for the support of school districts, community college districts, and state agencies that provide direct elementary and secondary level instructional services. The Legislature further finds and declares that, by defining certain terms used in establishing a method of calculation for determining the guaranteed minimum level of funding, Sections 14022.3 and 14022.5 and this chapter further the purposes of “The Classroom Instructional Improvement and Accountability Act.”

(c) It is the intent of the Legislature that the annual Budget Bill, required by Section 12 of Article IV of the California Constitution, include a section that specifies the respective percentages and amounts of General Fund revenues that must be set aside and applied for the support of school districts, community college districts, and the direct elementary and secondary level instructional services of state agencies, as required by subdivision (b) of Section 8 of Article XVI of the California Constitution.

history: (History: Amended (as added by Stats. 1989, Ch. 83, Sec. 8) by Stats. 2015, Ch. 3, Sec. 2. (AB 158) Effective January 1, 2016.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

path: 2. ELEMENTARY AND SECONDARY EDUCATION > 3. LOCAL ADMINISTRATION > 24. SCHOOL FINANCE > 2. Determination of Minimum Level of Education Funding


text:
The words and phrases set forth in subdivision (b) of Section 8 of Article XVI of the Constitution of the State of California shall have the following meanings:

(a) “Moneys to be applied by the State,” as used in subdivision (b) of Section 8 of Article XVI of the California Constitution, means appropriations from the General Fund that are made for allocation to school districts, as defined, or community college districts. An appropriation that is withheld, impounded, or made without provisions for its allocation to school districts or community college districts shall not be considered to be “moneys to be applied by the State.”

(b) “General Fund revenues which may be appropriated pursuant to Article XIIIB,” as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means General Fund revenues that are the proceeds of taxes as defined by subdivision (c) of Section 8 of Article XIIIB of the California Constitution, including, for the 1986–87 fiscal year only, any revenues that are determined to be in excess of the appropriations limit established pursuant to Article XIIIB of the California Constitution for the fiscal year in which they are received. General Fund revenues for a fiscal year to which paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution is being applied shall include, in that computation, only General Fund revenues for that fiscal year that are the proceeds of taxes, as defined in subdivision (c) of Section 8 of Article XIIIB of the California Constitution, and shall not include prior fiscal year revenues. Commencing with the 1995–96 fiscal year, and each fiscal year thereafter, “General Fund revenues that are the proceeds of taxes,” as defined in subdivision (c) of Section 8 of Article XIIIB of the California Constitution, includes any portion of the proceeds of taxes received from the state sales tax that are transferred to the counties pursuant to, and only if, legislation is enacted during the 1995–96 fiscal year the purpose of which is to realign children’s programs. The amount of the proceeds of taxes shall be computed for any fiscal year in a manner consistent with the manner in which the amount of the proceeds of taxes was computed by the Department of Finance for purposes of the Governor’s Budget for the Budget Act of 1986 (Chapter 186 of the Statutes of 1986).

(c) “General Fund revenues appropriated for school districts,” as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means the sum of appropriations made that are for allocation to school districts, as defined in Section 41302.5, regardless of whether those appropriations were made from the General Fund to the Superintendent, to the Controller, or to any other fund or state agency for the purpose of allocation to school districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (1) of subdivision (b) of Article XVI of the California Constitution, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(d) “General Fund revenues appropriated for community college districts,” as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means the sum of appropriations made that are for allocation to community college districts, regardless of whether those appropriations were made from the General Fund to the Controller, to the Chancellor of the California Community Colleges, or to any other fund or state agency for the purpose of allocation to community college districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (1) of subdivision (b) of Article XVI of the California Constitution, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(e) “Total allocations to school districts and community college districts from General Fund proceeds of taxes appropriated pursuant to Article XIIIB,” as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means the sum of appropriations made that are for allocation to school districts, as defined in Section 41302.5, and community college districts, regardless of whether those appropriations were made from the General Fund to the Controller, to the Superintendent, to the Chancellor of the California Community Colleges, or to any other fund or state agency for the purpose of allocation to school districts and community college districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(f) “General Fund revenues appropriated for school districts and community college districts, respectively” and “moneys to be applied by the state for the support of school districts and community college districts,” as used in Section 8 of Article XVI of the California Constitution, shall include funds appropriated to local educational agencies, as defined in Section 8208, for part-day California state preschool programs under Article 7 (commencing with Section 8235) of Chapter 2 of Part 6 of Division 1 of Title 1, funds appropriated to local educational agencies, as defined in Section 8208, to create a full day of care for children participating in the California state preschool program, and funds appropriated for the After School Education and Safety Program established pursuant to Article 22.5 (commencing with Section 8482) of Chapter 2 of Part 6 of Division 1 of Title 1, and shall not include any of the following:

(1) Any appropriation that is not made for allocation to a school district, as defined in Section 41302.5, or to a community college district, regardless of whether the appropriation is made for any purpose that may be considered to be for the benefit to a school district, as defined in Section 41302.5, or a community college district. This paragraph shall not be construed to exclude any funding appropriated to local educational agencies, as defined in Section 8208, for part-day California state preschool programs under Article 7 (commencing with Section 8235) of Chapter 2 of Part 6 of Division 1 of Title 1, to local educational agencies, as defined in Section 8208, to create a full day of care for children participating in the California state preschool program, or for the After School Education and Safety Program established pursuant to Article 22.5 (commencing with Section 8482) of Chapter 2 of Part 6 of Division 1 of Title 1.

(2) Any appropriation made to the Teachers’ Retirement Fund or to the Public Employees’ Retirement Fund except those appropriations for reimbursable state mandates imposed on or before January 1, 1988.

(3) Any appropriation made to service any public debt approved by the voters of this state.

(4) With the exception of the programs identified in paragraph (1), commencing with the 2011–12 fiscal year, any funds appropriated for the Child Care and Development Services Act, pursuant to Chapter 2 (commencing with Section 8200) of Part 6 of Division 1 of Title 1.

(5) Any amount recognized for budgetary and financial reporting purposes pursuant to the requirements of paragraph (1) of subdivision (c) of, and paragraph (5) of subdivision (d) of, Section 41206.04.

(g) “Allocated local proceeds of taxes,” as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means, for school districts as defined, those local revenues, except revenues identified pursuant to paragraph (5) of subdivision (j) of Section 42238.02, that are used to offset state aid for school districts in calculations performed pursuant to Sections 2558 and 42238 and Chapter 7.2 (commencing with Section 56836) of Part 30.

(h) “Allocated local proceeds of taxes,” as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means, for community college districts, those local revenues that are used to offset state aid for community college districts. In no event shall the revenues or receipts derived from student fees be considered “allocated local proceeds of taxes.”

(i) For purposes of calculating the 4-percent entitlement pursuant to subdivision (a) of Section 8.5 of Article XVI of the California Constitution, “the total amount required pursuant to Section 8(b)” shall mean the General Fund aid required for schools pursuant to subdivision (b) of Section 8 of Article XVI of the California Constitution, and shall not include allocated local proceeds of taxes.

(j) This section shall become inoperative on December 15, 2012, and, as of January 1, 2013, is repealed, only if the Schools and Local Public Safety Protection Act of 2012 (Attorney General reference number 12-0009) is not approved by the voters at the November 6, 2012, statewide general election, or if the provisions of that act that modify personal income tax rates do not become operative due to a conflict with another initiative measure that is approved at the same election and receives a greater number of affirmative votes.

history: (History: Amended by Stats. 2024, Ch. 38, Sec. 13. (SB 153) Effective June 29, 2024. Note: Conditions, in subd. (j), for inoperation and repeal failed; Prop. 30 was approved on Nov. 6, 2012.)

title: 2. ELEMENTARY AND SECONDARY EDUCATION

chapter: 2. Determination of Minimum Level of Education Funding