Education Code section 41020
(a)
It is the intent of the Legislature to encourage sound fiscal management practices among local educational agencies for the most efficient and effective use of public funds for the education of children in California by strengthening fiscal accountability at the school district, county, and state levels.(b)
A local educational agency shall post the local educational agency’s annual financial and compliance audits on its internet website.(c)
(1)(A)On or before May 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.(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.(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.(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.(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.(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.
Source:
Section 41020, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC§ionNum=41020. (updated Jul. 9, 2026; accessed Jul. 20, 2026).
