14500. It is the intent of the Legislature in enacting this chapter
to promote accountability over public educational funding by
establishing a new program to review and report on financial and
compliance audits of school districts and the offices of county
superintendents of schools. It is further the intent of the
Legislature that the Controller shall have the primary responsibility
for implementing and overseeing the program.
14501. (a) As used in this chapter, "financial and compliance audit"
shall be consistent with the definition provided in the "Standards
for Audits of Governmental Organizations, Programs, Activities, and
Functions" promulgated by the Comptroller General of the United
States. Financial and compliance audits conducted under this chapter
shall fulfill federal single audit requirements.
(b) As used in this chapter, "compliance audit" means an audit
that ascertains and verifies whether or not funds provided through
apportionment, contract, or grant, either federal or state, have been
properly disbursed and expended as required by law or regulation or
both and includes the verification of each of the following:
(1) The reporting requirements for the sufficiency of textbooks or
instructional materials, or both, as defined in Section 60119.
(2) Teacher misassignments pursuant to Section 44258.9.
(3) The accuracy of information reported on the School
Accountability Report Card required by Section 33126. The
requirements set forth in paragraphs (1) and (2) and this paragraph
shall be added to the audit guide requirements pursuant to
subdivision (b) of Section 14502.1.
14502.1. (a) The Controller, in consultation with the Department of
Finance and the State Department of Education, shall develop a plan
to review and report on financial and compliance audits. The plan
shall commence with the 2003-04 fiscal year for audits of school
districts, other local education agencies, and the offices of county
superintendents of schools. The Controller, in consultation with the
Department of Finance, the State Department of Education, and
representatives of the California School Boards Association, the
California Association of School Business Officials, the California
County Superintendents Educational Service Association, the
California Teachers Association, the California Society of Certified
Public Accountants, shall recommend the statements and other
information to be included in the audit reports filed with the state,
and shall propose the content of an audit guide to carry out the
purposes of this chapter. A supplement to the audit guide may be
suggested in the audit year, following the above process, to address
issues resulting from new legislation in that year that changes the
conditions of apportionment. The proposed content of the audit guide
and any supplement to the audit guide shall be submitted by the
Controller to the Education Audits Appeal Panel for review and
possible amendment.
(b) The audit guide and any supplement shall be adopted by the
Education Audits Appeal Panel pursuant to the rulemaking procedures
of the Administrative Procedure Act as set forth in Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code. It is the intent of the Legislature that, for
the 2003-04 fiscal year, the audit guide be adopted by July 1 of the
fiscal year to be audited. A supplemental audit guide may be adopted
to address legislative changes to the conditions of apportionment. It
is the intent of the Legislature that supplements be adopted before
March 1 of the audit year. Commencing with the 2004-05 fiscal year,
and each fiscal year thereafter, the audit guide shall be adopted by
July 1 of the fiscal year to be audited. A supplemental audit guide
may be adopted to address legislative changes to the conditions of
apportionment. The supplements shall be adopted before March 1 of the
audit year. To meet these goals and to ensure the accuracy of the
audit guide, the process for adopting emergency regulations set forth
in Section 11346.1 of the Government Code may be followed to adopt
the guide and supplemental audit guide. It is the intent of the
Legislature that once the audit guide has been adopted for a fiscal
year, as well as any supplement for that year, thereafter only
suggested changes to the audit guide and any additional supplements
need be adopted pursuant to the rulemaking procedures of the
Administrative Procedure Act. The audit guide and any supplement
shall be issued in booklet form and may be made available by any
means deemed appropriate. The Controller and consultants in the
development of the suggested audit guide and any supplement shall
work cooperatively on a timeline that will allow the education audits
appeal panel to meet the July 1 and March 1 issuance dates.
Consistent with current practices for development of the audit guide
before the 2003-04 fiscal year, the Controller shall provide for the
adoption of procedures and timetables for the development of the
suggested audit guide, any supplement, and the format for additions,
deletions, and revisions.
(c) For the audit of school districts or county offices of
education electing to take formal action pursuant to Sections 22714,
22714.5, 44929, and 44929.1, the audit guide content proposed by the
Controller shall include, but not be limited to, the following:
(1) The number and type of positions vacated.
(2) The age and service credit of the retirees receiving the
additional service credit provided by Sections 22714,22714.5, 44929,
and 44929.1.
(3) A comparison of the salary and benefits of each retiree
receiving the additional service credit with the salary and benefits
of the replacement employee, if any.
(4) The resulting retirement cost, including interest, if any, and
postretirement health care benefits costs, incurred by the employer.
(d) The Controller shall annually prepare a cost analysis, based
on the information included in the audit reports for the prior fiscal
year, to determine the net savings or costs resulting from formal
actions taken by school districts and county offices of education
pursuant to Sections 22714, 22714.5, 44929, and 44929.1, and shall
report the results of the cost analysis to the Governor and the
Legislature by April 1 of each year.
(e) All costs incurred by the Controller to implement subdivision
(c) shall be absorbed by the Controller.
(f) This section shall become operative July 1, 2003 and shall
apply to the preparation of the audit guide for school district
audits commencing with the 2003-04 fiscal year.
14503. (a) Financial and compliance audits shall be performed in
accordance with General Accounting Office standards for financial and
compliance audits. The audit guide prepared by the Controller shall
be used in the performance of these audits until an audit guide is
adopted by the Education Audits Appeal Panel pursuant to Section
14502.1. When an audit guide is adopted by that panel, the adopted
audit guide shall be used in the performance of these audits. Every
audit report shall specifically and separately address each of the
state program compliance requirements included in the audit guide,
stating whether or not the district is in compliance with those
requirements. For each state program compliance requirement included
in the audit guide, every audit report shall further state that the
suggested audit procedures included in the audit guide for that
requirement were followed in the making of the audit, if that is the
case, or, if not, what other procedures were followed. If a local
education agency is not in compliance with a requirement that is a
condition of eligibility for the receipt of state funds, the audit
report shall include a statement of the number of units of average
daily attendance, if any, that were inappropriately reported for
apportionment.
(b) An independent auditor shall not engage in financial or
compliance audits unless, within three years of commencing the first
of the audits, and every successive three years thereafter, the
auditor completes a quality control review in accordance with General
Accounting Office standards. The time period between commencement of
the first audit, or completion of a quality control review, and
completion of a subsequent quality control review shall be calculated
from the first day of the month following commencement of the audit
or completion of the quality control review. Notwithstanding this
subdivision, independent auditors may continue to perform any
financial and compliance audits until January 1, 1994.
14504. To determine the practicability and effectiveness of the
audits and audit guide, the Controller shall, on an annual basis,
review and monitor the audit reports performed by independent
auditors. The Controller shall determine whether audit reports are in
conformance with reporting provisions of subdivision (a) of Section
14503 and shall notify each local education agency, office of the
responsible county superintendent of schools, the Superintendent of
Public Instruction, the Department of Finance, and the auditor
regarding each determination. The local education agency or the
county superintendent of schools contracting for the financial and
compliance audit shall include a statement that will provide the
Controller access to audit working papers.
14504.2. (a) The Controller may perform quality control reviews of
audit working papers to determine whether audits are performed in
conformity with subdivision (a) of Section 14503. The Department of
Finance may refer an independent auditor of a school district to the
Controller for a review pursuant to this section if the Department of
Finance finds that an audit of a school district was conducted in a
manner that may constitute noncompliance with subdivision (a) of
Section 14503. The Controller shall communicate the results of his or
her reviews to the Department of Finance, the independent auditor,
and the school district or office of the county superintendent of
schools for which the audit was performed, and shall review his or
her findings with the independent auditor.
(b) Prior to the performance of any quality control reviews, the
Controller shall develop and publish guidelines and standards for
those reviews. Pursuant to the development of those guidelines and
standards, the Controller shall provide opportunity for public
comment.
(c) (1) The Controller shall conduct a quality control review of
the audit working papers of the independent auditor who performed the
audits for a local education agency for the prior three fiscal years
if any of the following circumstances exists:
(A) The local education agency 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.
(B) The budget of the local education agency is disapproved or the
local education agency has received a negative certification on any
budget or interim financial report, as defined in Section 42131,
during the current or preceding fiscal year.
(C) The responsible county superintendent of schools has otherwise
determined that a lack of going concern exists for a local education
agency pursuant to Section 42127.6.
(2) If the quality control review of the Controller indicates that
the audit was conducted in a manner that may constitute
unprofessional conduct as defined pursuant to Section 5100 of the
Business and Professions Code, including, but not limited to, gross
negligence resulting in a material misstatement in the audit, the
Controller shall refer the case to the California Board of
Accountancy. If the California Board of Accountancy finds that the
independent auditor conducted an audit in an unprofessional manner,
the independent auditor is prohibited from performing any audit of a
local education agency for a period of three years, in addition to
any other penalties that the California Board of Accountancy may
impose.
(d) In any matter that is referred to the California Board of
Accountancy under subparagraph (A) of paragraph (1) of subdivision
(c), the Controller may suspend the independent auditor from
performing any local education agency audits pending final
disposition of the matter by the California Board of Accountancy if
the Controller gives the independent auditor notice and an
opportunity to respond to that suspension. The independent auditor
shall be given credit for any period of suspension if the California
Board of Accountancy prohibits the independent auditor from
performing audits of the local education agency under subdivision
(c). In no event may the Controller suspend an independent auditor
under this subdivision for a period of longer than three years.
(e) The county superintendent of schools or the county board of
education may refer an independent auditor of a local education
agency to the California Board of Accountancy for action pursuant to
subdivision (c) if an audit of a local education agency was conducted
in a manner that may constitute unprofessional conduct as defined by
Section 5100 of the Business and Professions Code, including, but
not limited to, gross negligence resulting in a material misstatement
in the audit.
14505. The governing board of each school district and each office
of the county superintendent of schools shall include the following
two provisions in their contracts for audits:
(a) A provision to withhold 10 percent of the audit fee until the
Controller certifies that the audit report conforms to the reporting
provisions of subdivision (a) of Section 14503.
(b) A provision to withhold 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 reporting provisions of
subdivision (a) of Section 14503. This provision shall include a
statement that a multiyear contract will be null and void if a firm
or individual is declared ineligible pursuant to subdivision (c) of
Section 41020.5. The amount withheld is not payable unless payment is
ordered by the California Board of Accountancy or the audit report
for that subsequent year is certified by the Controller as conforming
to reporting provisions of subdivision (a) of Section 14503.
(c) Within 30 days from the date of receipt of written
notification that the Controller refuses to certify an audit report
as conforming to reporting provisions of subdivision (a) of Section
14503, an auditor or audit firm having a portion of an audit fee
withheld pursuant to these provisions may file an appeal in writing
with the California Board of Accountancy. The board 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 reporting provisions of subdivision (a) of Section
14503.
(2) Schedule the appeal for a hearing, in which case the final
action on the appeal shall be completed by the board within one year
from the date of filing the appeal.
(d) If the board orders the Controller to provide notification
that the audit report conforms to reporting provisions of subdivision
(a) of Section 14503, the Controller shall notify the contracting
school district which shall then release the portion of the audit fee
being withheld in accordance with this section.
14506. The Controller shall conduct any additional audits which are
necessary to carry out his or her duties and responsibilities under
this code and the Government Code. Nothing in this chapter shall be
construed to authorize any local educational agency, or any
subcontractor or subrecipient, to constrain, in any manner, the
Controller from carrying out any additional audits. However, to the
extent that the required financial and compliance audits provide the
Controller with the information necessary to carry out his or her
responsibilities, the Controller shall plan additional audits as
appropriate to avoid any unnecessary duplication of audit efforts. In
performing these additional audits, the Controller shall, to the
extent deemed appropriate under the circumstances, build upon the
work performed during the required financial and compliance audit.
The Controller shall not bill the school district or the county
superintendent of schools for the costs of these additional audits.
14507. The Controller shall report to the State Department of
Education by June 30 of each year in order to apprise the department
of school districts and offices of county superintendents of schools
which are not in compliance with the applicable statutes and
regulations. The Controller's report shall categorize audit exception
by types and shall identify the reasons for the exceptions. The
reasons may be the legislative intent or language is unclear or the
administrative requirement is not feasible. The Controller shall make
recommendations as to what action should be taken by the department.
Before issuing the report, the Controller shall allow the school
district or the county superintendent of schools specified in the
report a reasonable period of time to review and comment on the
section of the report affecting them.
14508. The Controller shall submit a report to the Legislature on
or before June 30 of each year regarding any recommendations made to
the State Department of Education under Section 14507.
14500. It is the intent of the Legislature in enacting this chapter
to promote accountability over public educational funding by
establishing a new program to review and report on financial and
compliance audits of school districts and the offices of county
superintendents of schools. It is further the intent of the
Legislature that the Controller shall have the primary responsibility
for implementing and overseeing the program.
14501. (a) As used in this chapter, "financial and compliance audit"
shall be consistent with the definition provided in the "Standards
for Audits of Governmental Organizations, Programs, Activities, and
Functions" promulgated by the Comptroller General of the United
States. Financial and compliance audits conducted under this chapter
shall fulfill federal single audit requirements.
(b) As used in this chapter, "compliance audit" means an audit
that ascertains and verifies whether or not funds provided through
apportionment, contract, or grant, either federal or state, have been
properly disbursed and expended as required by law or regulation or
both and includes the verification of each of the following:
(1) The reporting requirements for the sufficiency of textbooks or
instructional materials, or both, as defined in Section 60119.
(2) Teacher misassignments pursuant to Section 44258.9.
(3) The accuracy of information reported on the School
Accountability Report Card required by Section 33126. The
requirements set forth in paragraphs (1) and (2) and this paragraph
shall be added to the audit guide requirements pursuant to
subdivision (b) of Section 14502.1.
14502.1. (a) The Controller, in consultation with the Department of
Finance and the State Department of Education, shall develop a plan
to review and report on financial and compliance audits. The plan
shall commence with the 2003-04 fiscal year for audits of school
districts, other local education agencies, and the offices of county
superintendents of schools. The Controller, in consultation with the
Department of Finance, the State Department of Education, and
representatives of the California School Boards Association, the
California Association of School Business Officials, the California
County Superintendents Educational Service Association, the
California Teachers Association, the California Society of Certified
Public Accountants, shall recommend the statements and other
information to be included in the audit reports filed with the state,
and shall propose the content of an audit guide to carry out the
purposes of this chapter. A supplement to the audit guide may be
suggested in the audit year, following the above process, to address
issues resulting from new legislation in that year that changes the
conditions of apportionment. The proposed content of the audit guide
and any supplement to the audit guide shall be submitted by the
Controller to the Education Audits Appeal Panel for review and
possible amendment.
(b) The audit guide and any supplement shall be adopted by the
Education Audits Appeal Panel pursuant to the rulemaking procedures
of the Administrative Procedure Act as set forth in Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code. It is the intent of the Legislature that, for
the 2003-04 fiscal year, the audit guide be adopted by July 1 of the
fiscal year to be audited. A supplemental audit guide may be adopted
to address legislative changes to the conditions of apportionment. It
is the intent of the Legislature that supplements be adopted before
March 1 of the audit year. Commencing with the 2004-05 fiscal year,
and each fiscal year thereafter, the audit guide shall be adopted by
July 1 of the fiscal year to be audited. A supplemental audit guide
may be adopted to address legislative changes to the conditions of
apportionment. The supplements shall be adopted before March 1 of the
audit year. To meet these goals and to ensure the accuracy of the
audit guide, the process for adopting emergency regulations set forth
in Section 11346.1 of the Government Code may be followed to adopt
the guide and supplemental audit guide. It is the intent of the
Legislature that once the audit guide has been adopted for a fiscal
year, as well as any supplement for that year, thereafter only
suggested changes to the audit guide and any additional supplements
need be adopted pursuant to the rulemaking procedures of the
Administrative Procedure Act. The audit guide and any supplement
shall be issued in booklet form and may be made available by any
means deemed appropriate. The Controller and consultants in the
development of the suggested audit guide and any supplement shall
work cooperatively on a timeline that will allow the education audits
appeal panel to meet the July 1 and March 1 issuance dates.
Consistent with current practices for development of the audit guide
before the 2003-04 fiscal year, the Controller shall provide for the
adoption of procedures and timetables for the development of the
suggested audit guide, any supplement, and the format for additions,
deletions, and revisions.
(c) For the audit of school districts or county offices of
education electing to take formal action pursuant to Sections 22714,
22714.5, 44929, and 44929.1, the audit guide content proposed by the
Controller shall include, but not be limited to, the following:
(1) The number and type of positions vacated.
(2) The age and service credit of the retirees receiving the
additional service credit provided by Sections 22714,22714.5, 44929,
and 44929.1.
(3) A comparison of the salary and benefits of each retiree
receiving the additional service credit with the salary and benefits
of the replacement employee, if any.
(4) The resulting retirement cost, including interest, if any, and
postretirement health care benefits costs, incurred by the employer.
(d) The Controller shall annually prepare a cost analysis, based
on the information included in the audit reports for the prior fiscal
year, to determine the net savings or costs resulting from formal
actions taken by school districts and county offices of education
pursuant to Sections 22714, 22714.5, 44929, and 44929.1, and shall
report the results of the cost analysis to the Governor and the
Legislature by April 1 of each year.
(e) All costs incurred by the Controller to implement subdivision
(c) shall be absorbed by the Controller.
(f) This section shall become operative July 1, 2003 and shall
apply to the preparation of the audit guide for school district
audits commencing with the 2003-04 fiscal year.
14503. (a) Financial and compliance audits shall be performed in
accordance with General Accounting Office standards for financial and
compliance audits. The audit guide prepared by the Controller shall
be used in the performance of these audits until an audit guide is
adopted by the Education Audits Appeal Panel pursuant to Section
14502.1. When an audit guide is adopted by that panel, the adopted
audit guide shall be used in the performance of these audits. Every
audit report shall specifically and separately address each of the
state program compliance requirements included in the audit guide,
stating whether or not the district is in compliance with those
requirements. For each state program compliance requirement included
in the audit guide, every audit report shall further state that the
suggested audit procedures included in the audit guide for that
requirement were followed in the making of the audit, if that is the
case, or, if not, what other procedures were followed. If a local
education agency is not in compliance with a requirement that is a
condition of eligibility for the receipt of state funds, the audit
report shall include a statement of the number of units of average
daily attendance, if any, that were inappropriately reported for
apportionment.
(b) An independent auditor shall not engage in financial or
compliance audits unless, within three years of commencing the first
of the audits, and every successive three years thereafter, the
auditor completes a quality control review in accordance with General
Accounting Office standards. The time period between commencement of
the first audit, or completion of a quality control review, and
completion of a subsequent quality control review shall be calculated
from the first day of the month following commencement of the audit
or completion of the quality control review. Notwithstanding this
subdivision, independent auditors may continue to perform any
financial and compliance audits until January 1, 1994.
14504. To determine the practicability and effectiveness of the
audits and audit guide, the Controller shall, on an annual basis,
review and monitor the audit reports performed by independent
auditors. The Controller shall determine whether audit reports are in
conformance with reporting provisions of subdivision (a) of Section
14503 and shall notify each local education agency, office of the
responsible county superintendent of schools, the Superintendent of
Public Instruction, the Department of Finance, and the auditor
regarding each determination. The local education agency or the
county superintendent of schools contracting for the financial and
compliance audit shall include a statement that will provide the
Controller access to audit working papers.
14504.2. (a) The Controller may perform quality control reviews of
audit working papers to determine whether audits are performed in
conformity with subdivision (a) of Section 14503. The Department of
Finance may refer an independent auditor of a school district to the
Controller for a review pursuant to this section if the Department of
Finance finds that an audit of a school district was conducted in a
manner that may constitute noncompliance with subdivision (a) of
Section 14503. The Controller shall communicate the results of his or
her reviews to the Department of Finance, the independent auditor,
and the school district or office of the county superintendent of
schools for which the audit was performed, and shall review his or
her findings with the independent auditor.
(b) Prior to the performance of any quality control reviews, the
Controller shall develop and publish guidelines and standards for
those reviews. Pursuant to the development of those guidelines and
standards, the Controller shall provide opportunity for public
comment.
(c) (1) The Controller shall conduct a quality control review of
the audit working papers of the independent auditor who performed the
audits for a local education agency for the prior three fiscal years
if any of the following circumstances exists:
(A) The local education agency 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.
(B) The budget of the local education agency is disapproved or the
local education agency has received a negative certification on any
budget or interim financial report, as defined in Section 42131,
during the current or preceding fiscal year.
(C) The responsible county superintendent of schools has otherwise
determined that a lack of going concern exists for a local education
agency pursuant to Section 42127.6.
(2) If the quality control review of the Controller indicates that
the audit was conducted in a manner that may constitute
unprofessional conduct as defined pursuant to Section 5100 of the
Business and Professions Code, including, but not limited to, gross
negligence resulting in a material misstatement in the audit, the
Controller shall refer the case to the California Board of
Accountancy. If the California Board of Accountancy finds that the
independent auditor conducted an audit in an unprofessional manner,
the independent auditor is prohibited from performing any audit of a
local education agency for a period of three years, in addition to
any other penalties that the California Board of Accountancy may
impose.
(d) In any matter that is referred to the California Board of
Accountancy under subparagraph (A) of paragraph (1) of subdivision
(c), the Controller may suspend the independent auditor from
performing any local education agency audits pending final
disposition of the matter by the California Board of Accountancy if
the Controller gives the independent auditor notice and an
opportunity to respond to that suspension. The independent auditor
shall be given credit for any period of suspension if the California
Board of Accountancy prohibits the independent auditor from
performing audits of the local education agency under subdivision
(c). In no event may the Controller suspend an independent auditor
under this subdivision for a period of longer than three years.
(e) The county superintendent of schools or the county board of
education may refer an independent auditor of a local education
agency to the California Board of Accountancy for action pursuant to
subdivision (c) if an audit of a local education agency was conducted
in a manner that may constitute unprofessional conduct as defined by
Section 5100 of the Business and Professions Code, including, but
not limited to, gross negligence resulting in a material misstatement
in the audit.
14505. The governing board of each school district and each office
of the county superintendent of schools shall include the following
two provisions in their contracts for audits:
(a) A provision to withhold 10 percent of the audit fee until the
Controller certifies that the audit report conforms to the reporting
provisions of subdivision (a) of Section 14503.
(b) A provision to withhold 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 reporting provisions of
subdivision (a) of Section 14503. This provision shall include a
statement that a multiyear contract will be null and void if a firm
or individual is declared ineligible pursuant to subdivision (c) of
Section 41020.5. The amount withheld is not payable unless payment is
ordered by the California Board of Accountancy or the audit report
for that subsequent year is certified by the Controller as conforming
to reporting provisions of subdivision (a) of Section 14503.
(c) Within 30 days from the date of receipt of written
notification that the Controller refuses to certify an audit report
as conforming to reporting provisions of subdivision (a) of Section
14503, an auditor or audit firm having a portion of an audit fee
withheld pursuant to these provisions may file an appeal in writing
with the California Board of Accountancy. The board 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 reporting provisions of subdivision (a) of Section
14503.
(2) Schedule the appeal for a hearing, in which case the final
action on the appeal shall be completed by the board within one year
from the date of filing the appeal.
(d) If the board orders the Controller to provide notification
that the audit report conforms to reporting provisions of subdivision
(a) of Section 14503, the Controller shall notify the contracting
school district which shall then release the portion of the audit fee
being withheld in accordance with this section.
14506. The Controller shall conduct any additional audits which are
necessary to carry out his or her duties and responsibilities under
this code and the Government Code. Nothing in this chapter shall be
construed to authorize any local educational agency, or any
subcontractor or subrecipient, to constrain, in any manner, the
Controller from carrying out any additional audits. However, to the
extent that the required financial and compliance audits provide the
Controller with the information necessary to carry out his or her
responsibilities, the Controller shall plan additional audits as
appropriate to avoid any unnecessary duplication of audit efforts. In
performing these additional audits, the Controller shall, to the
extent deemed appropriate under the circumstances, build upon the
work performed during the required financial and compliance audit.
The Controller shall not bill the school district or the county
superintendent of schools for the costs of these additional audits.
14507. The Controller shall report to the State Department of
Education by June 30 of each year in order to apprise the department
of school districts and offices of county superintendents of schools
which are not in compliance with the applicable statutes and
regulations. The Controller's report shall categorize audit exception
by types and shall identify the reasons for the exceptions. The
reasons may be the legislative intent or language is unclear or the
administrative requirement is not feasible. The Controller shall make
recommendations as to what action should be taken by the department.
Before issuing the report, the Controller shall allow the school
district or the county superintendent of schools specified in the
report a reasonable period of time to review and comment on the
section of the report affecting them.
14508. The Controller shall submit a report to the Legislature on
or before June 30 of each year regarding any recommendations made to
the State Department of Education under Section 14507.
14500. It is the intent of the Legislature in enacting this chapter
to promote accountability over public educational funding by
establishing a new program to review and report on financial and
compliance audits of school districts and the offices of county
superintendents of schools. It is further the intent of the
Legislature that the Controller shall have the primary responsibility
for implementing and overseeing the program.
14501. (a) As used in this chapter, "financial and compliance audit"
shall be consistent with the definition provided in the "Standards
for Audits of Governmental Organizations, Programs, Activities, and
Functions" promulgated by the Comptroller General of the United
States. Financial and compliance audits conducted under this chapter
shall fulfill federal single audit requirements.
(b) As used in this chapter, "compliance audit" means an audit
that ascertains and verifies whether or not funds provided through
apportionment, contract, or grant, either federal or state, have been
properly disbursed and expended as required by law or regulation or
both and includes the verification of each of the following:
(1) The reporting requirements for the sufficiency of textbooks or
instructional materials, or both, as defined in Section 60119.
(2) Teacher misassignments pursuant to Section 44258.9.
(3) The accuracy of information reported on the School
Accountability Report Card required by Section 33126. The
requirements set forth in paragraphs (1) and (2) and this paragraph
shall be added to the audit guide requirements pursuant to
subdivision (b) of Section 14502.1.
14502.1. (a) The Controller, in consultation with the Department of
Finance and the State Department of Education, shall develop a plan
to review and report on financial and compliance audits. The plan
shall commence with the 2003-04 fiscal year for audits of school
districts, other local education agencies, and the offices of county
superintendents of schools. The Controller, in consultation with the
Department of Finance, the State Department of Education, and
representatives of the California School Boards Association, the
California Association of School Business Officials, the California
County Superintendents Educational Service Association, the
California Teachers Association, the California Society of Certified
Public Accountants, shall recommend the statements and other
information to be included in the audit reports filed with the state,
and shall propose the content of an audit guide to carry out the
purposes of this chapter. A supplement to the audit guide may be
suggested in the audit year, following the above process, to address
issues resulting from new legislation in that year that changes the
conditions of apportionment. The proposed content of the audit guide
and any supplement to the audit guide shall be submitted by the
Controller to the Education Audits Appeal Panel for review and
possible amendment.
(b) The audit guide and any supplement shall be adopted by the
Education Audits Appeal Panel pursuant to the rulemaking procedures
of the Administrative Procedure Act as set forth in Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code. It is the intent of the Legislature that, for
the 2003-04 fiscal year, the audit guide be adopted by July 1 of the
fiscal year to be audited. A supplemental audit guide may be adopted
to address legislative changes to the conditions of apportionment. It
is the intent of the Legislature that supplements be adopted before
March 1 of the audit year. Commencing with the 2004-05 fiscal year,
and each fiscal year thereafter, the audit guide shall be adopted by
July 1 of the fiscal year to be audited. A supplemental audit guide
may be adopted to address legislative changes to the conditions of
apportionment. The supplements shall be adopted before March 1 of the
audit year. To meet these goals and to ensure the accuracy of the
audit guide, the process for adopting emergency regulations set forth
in Section 11346.1 of the Government Code may be followed to adopt
the guide and supplemental audit guide. It is the intent of the
Legislature that once the audit guide has been adopted for a fiscal
year, as well as any supplement for that year, thereafter only
suggested changes to the audit guide and any additional supplements
need be adopted pursuant to the rulemaking procedures of the
Administrative Procedure Act. The audit guide and any supplement
shall be issued in booklet form and may be made available by any
means deemed appropriate. The Controller and consultants in the
development of the suggested audit guide and any supplement shall
work cooperatively on a timeline that will allow the education audits
appeal panel to meet the July 1 and March 1 issuance dates.
Consistent with current practices for development of the audit guide
before the 2003-04 fiscal year, the Controller shall provide for the
adoption of procedures and timetables for the development of the
suggested audit guide, any supplement, and the format for additions,
deletions, and revisions.
(c) For the audit of school districts or county offices of
education electing to take formal action pursuant to Sections 22714,
22714.5, 44929, and 44929.1, the audit guide content proposed by the
Controller shall include, but not be limited to, the following:
(1) The number and type of positions vacated.
(2) The age and service credit of the retirees receiving the
additional service credit provided by Sections 22714,22714.5, 44929,
and 44929.1.
(3) A comparison of the salary and benefits of each retiree
receiving the additional service credit with the salary and benefits
of the replacement employee, if any.
(4) The resulting retirement cost, including interest, if any, and
postretirement health care benefits costs, incurred by the employer.
(d) The Controller shall annually prepare a cost analysis, based
on the information included in the audit reports for the prior fiscal
year, to determine the net savings or costs resulting from formal
actions taken by school districts and county offices of education
pursuant to Sections 22714, 22714.5, 44929, and 44929.1, and shall
report the results of the cost analysis to the Governor and the
Legislature by April 1 of each year.
(e) All costs incurred by the Controller to implement subdivision
(c) shall be absorbed by the Controller.
(f) This section shall become operative July 1, 2003 and shall
apply to the preparation of the audit guide for school district
audits commencing with the 2003-04 fiscal year.
14503. (a) Financial and compliance audits shall be performed in
accordance with General Accounting Office standards for financial and
compliance audits. The audit guide prepared by the Controller shall
be used in the performance of these audits until an audit guide is
adopted by the Education Audits Appeal Panel pursuant to Section
14502.1. When an audit guide is adopted by that panel, the adopted
audit guide shall be used in the performance of these audits. Every
audit report shall specifically and separately address each of the
state program compliance requirements included in the audit guide,
stating whether or not the district is in compliance with those
requirements. For each state program compliance requirement included
in the audit guide, every audit report shall further state that the
suggested audit procedures included in the audit guide for that
requirement were followed in the making of the audit, if that is the
case, or, if not, what other procedures were followed. If a local
education agency is not in compliance with a requirement that is a
condition of eligibility for the receipt of state funds, the audit
report shall include a statement of the number of units of average
daily attendance, if any, that were inappropriately reported for
apportionment.
(b) An independent auditor shall not engage in financial or
compliance audits unless, within three years of commencing the first
of the audits, and every successive three years thereafter, the
auditor completes a quality control review in accordance with General
Accounting Office standards. The time period between commencement of
the first audit, or completion of a quality control review, and
completion of a subsequent quality control review shall be calculated
from the first day of the month following commencement of the audit
or completion of the quality control review. Notwithstanding this
subdivision, independent auditors may continue to perform any
financial and compliance audits until January 1, 1994.
14504. To determine the practicability and effectiveness of the
audits and audit guide, the Controller shall, on an annual basis,
review and monitor the audit reports performed by independent
auditors. The Controller shall determine whether audit reports are in
conformance with reporting provisions of subdivision (a) of Section
14503 and shall notify each local education agency, office of the
responsible county superintendent of schools, the Superintendent of
Public Instruction, the Department of Finance, and the auditor
regarding each determination. The local education agency or the
county superintendent of schools contracting for the financial and
compliance audit shall include a statement that will provide the
Controller access to audit working papers.
14504.2. (a) The Controller may perform quality control reviews of
audit working papers to determine whether audits are performed in
conformity with subdivision (a) of Section 14503. The Department of
Finance may refer an independent auditor of a school district to the
Controller for a review pursuant to this section if the Department of
Finance finds that an audit of a school district was conducted in a
manner that may constitute noncompliance with subdivision (a) of
Section 14503. The Controller shall communicate the results of his or
her reviews to the Department of Finance, the independent auditor,
and the school district or office of the county superintendent of
schools for which the audit was performed, and shall review his or
her findings with the independent auditor.
(b) Prior to the performance of any quality control reviews, the
Controller shall develop and publish guidelines and standards for
those reviews. Pursuant to the development of those guidelines and
standards, the Controller shall provide opportunity for public
comment.
(c) (1) The Controller shall conduct a quality control review of
the audit working papers of the independent auditor who performed the
audits for a local education agency for the prior three fiscal years
if any of the following circumstances exists:
(A) The local education agency 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.
(B) The budget of the local education agency is disapproved or the
local education agency has received a negative certification on any
budget or interim financial report, as defined in Section 42131,
during the current or preceding fiscal year.
(C) The responsible county superintendent of schools has otherwise
determined that a lack of going concern exists for a local education
agency pursuant to Section 42127.6.
(2) If the quality control review of the Controller indicates that
the audit was conducted in a manner that may constitute
unprofessional conduct as defined pursuant to Section 5100 of the
Business and Professions Code, including, but not limited to, gross
negligence resulting in a material misstatement in the audit, the
Controller shall refer the case to the California Board of
Accountancy. If the California Board of Accountancy finds that the
independent auditor conducted an audit in an unprofessional manner,
the independent auditor is prohibited from performing any audit of a
local education agency for a period of three years, in addition to
any other penalties that the California Board of Accountancy may
impose.
(d) In any matter that is referred to the California Board of
Accountancy under subparagraph (A) of paragraph (1) of subdivision
(c), the Controller may suspend the independent auditor from
performing any local education agency audits pending final
disposition of the matter by the California Board of Accountancy if
the Controller gives the independent auditor notice and an
opportunity to respond to that suspension. The independent auditor
shall be given credit for any period of suspension if the California
Board of Accountancy prohibits the independent auditor from
performing audits of the local education agency under subdivision
(c). In no event may the Controller suspend an independent auditor
under this subdivision for a period of longer than three years.
(e) The county superintendent of schools or the county board of
education may refer an independent auditor of a local education
agency to the California Board of Accountancy for action pursuant to
subdivision (c) if an audit of a local education agency was conducted
in a manner that may constitute unprofessional conduct as defined by
Section 5100 of the Business and Professions Code, including, but
not limited to, gross negligence resulting in a material misstatement
in the audit.
14505. The governing board of each school district and each office
of the county superintendent of schools shall include the following
two provisions in their contracts for audits:
(a) A provision to withhold 10 percent of the audit fee until the
Controller certifies that the audit report conforms to the reporting
provisions of subdivision (a) of Section 14503.
(b) A provision to withhold 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 reporting provisions of
subdivision (a) of Section 14503. This provision shall include a
statement that a multiyear contract will be null and void if a firm
or individual is declared ineligible pursuant to subdivision (c) of
Section 41020.5. The amount withheld is not payable unless payment is
ordered by the California Board of Accountancy or the audit report
for that subsequent year is certified by the Controller as conforming
to reporting provisions of subdivision (a) of Section 14503.
(c) Within 30 days from the date of receipt of written
notification that the Controller refuses to certify an audit report
as conforming to reporting provisions of subdivision (a) of Section
14503, an auditor or audit firm having a portion of an audit fee
withheld pursuant to these provisions may file an appeal in writing
with the California Board of Accountancy. The board 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 reporting provisions of subdivision (a) of Section
14503.
(2) Schedule the appeal for a hearing, in which case the final
action on the appeal shall be completed by the board within one year
from the date of filing the appeal.
(d) If the board orders the Controller to provide notification
that the audit report conforms to reporting provisions of subdivision
(a) of Section 14503, the Controller shall notify the contracting
school district which shall then release the portion of the audit fee
being withheld in accordance with this section.
14506. The Controller shall conduct any additional audits which are
necessary to carry out his or her duties and responsibilities under
this code and the Government Code. Nothing in this chapter shall be
construed to authorize any local educational agency, or any
subcontractor or subrecipient, to constrain, in any manner, the
Controller from carrying out any additional audits. However, to the
extent that the required financial and compliance audits provide the
Controller with the information necessary to carry out his or her
responsibilities, the Controller shall plan additional audits as
appropriate to avoid any unnecessary duplication of audit efforts. In
performing these additional audits, the Controller shall, to the
extent deemed appropriate under the circumstances, build upon the
work performed during the required financial and compliance audit.
The Controller shall not bill the school district or the county
superintendent of schools for the costs of these additional audits.
14507. The Controller shall report to the State Department of
Education by June 30 of each year in order to apprise the department
of school districts and offices of county superintendents of schools
which are not in compliance with the applicable statutes and
regulations. The Controller's report shall categorize audit exception
by types and shall identify the reasons for the exceptions. The
reasons may be the legislative intent or language is unclear or the
administrative requirement is not feasible. The Controller shall make
recommendations as to what action should be taken by the department.
Before issuing the report, the Controller shall allow the school
district or the county superintendent of schools specified in the
report a reasonable period of time to review and comment on the
section of the report affecting them.
14508. The Controller shall submit a report to the Legislature on
or before June 30 of each year regarding any recommendations made to
the State Department of Education under Section 14507.
