Education Code section 41020.6
(a)
Commencing with the 2027–28 fiscal year Guide for Annual Audits of K–12 Local Education Agencies and State Compliance Reporting, the Controller shall include instructions necessary to require, 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.
Source:
Section 41020.6, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC§ionNum=41020.6. (updated Jul. 9, 2026; accessed Jul. 20, 2026).
