Education Code section 14505
(a)
The governing board or body of a local educational agency shall include both of the following provisions in their contracts for audits:(1)
A provision to withhold 10 percent of the audit fee until the Controller certifies that the audit report conforms to the reporting provisions of Section 14503.(2)
A provision to withhold 50 percent of the audit fee for any subsequent year of a multiyear contract if the prior year’s audit report was not certified as conforming to the reporting provisions of Section 14503. This provision shall include a statement that a multiyear contract will be null and void if a firm or individual is declared ineligible pursuant to subdivision (c) of Section 41020.5. The amount withheld is not payable unless payment is ordered by the California Board of Accountancy or the audit report for that subsequent year is certified by the Controller as conforming to the reporting provisions of Section 14503.(b)
If the Controller has not provided a written certification that the audit report has conformed to the reporting provisions of Section 14503 or a written rejection letter detailing the exceptions noted by the Controller’s review with instructions for corrections by the sixth month following the date that the audit is received by the Controller, or the audit due date, whichever is later, the governing board or body of the local educational agency may release the amounts withheld in audit fees pursuant to paragraph (1) of subdivision (a).(c)
Within 30 days from the date of receipt of written notification that the Controller refuses to certify an audit report as conforming to the reporting provisions of Section 14503, an auditor or audit firm having a portion of an audit fee withheld pursuant to these provisions may file an appeal in writing with the California Board of Accountancy. The California Board of Accountancy shall complete an investigation of the appeal within 90 days of the filing date and, on the basis of the investigation, do either of the following:(1)
Order the Controller to provide notification that the audit report conforms to the reporting provisions of Section 14503.(2)
Schedule the appeal for a hearing, in which case the final action on the appeal shall be completed by the California Board of Accountancy within one year from the date of filing the appeal.(d)
If the California Board of Accountancy orders the Controller to provide notification pursuant to paragraph (1) of subdivision (c), the Controller shall notify the contracting local educational agency which shall then release the portion of the audit fee being withheld in accordance with this section.
Source:
Section 14505, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC§ionNum=14505. (updated Jul. 9, 2026; accessed Jul. 20, 2026).
