Education Code § 14504.2

14504.2.

(a) The Controller may perform quality control reviews of audit working papers to determine whether audits are performed in conformity with Section 14503. The Department of Finance or the Superintendent may refer an independent auditor of a local educational agency to the Controller for a review pursuant to this section if the Department of Finance or the Superintendent finds that an audit of a local educational agency was conducted in a manner that may constitute noncompliance with Section 14503. The Controller shall communicate the results of the Controller’s reviews to the entity that referred the independent auditor to the Controller, the independent auditor, and the local educational agency for which the audit was performed, and shall review the Controller’s findings with the independent auditor.

(b) (1) 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.

(2) The Controller shall establish and publish as part of the audit guidelines a weighted risk-based criteria that considers auditor experience and quality factors in determining which audit engagements shall undergo a quality control review. Criteria shall include, but not be limited to, all of the following:

(A) Audit reports that were found to have material nonconformance to the reporting provisions of Section 14503 through the Controller’s review.

(B) Audits conducted by an engagement partner who has not performed audits of local educational agencies in the preceding three years.

(C) Audits that are submitted after the due date established pursuant to subdivision (k) of Section 41020, or an approved extension date, whichever is later.

(3) 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 educational agency for a period of three years, in addition to any other penalties that the California Board of Accountancy may impose.

(c) In any matter that is referred to the California Board of Accountancy under paragraph (3) of subdivision (b), the Controller may suspend the independent auditor from performing any local educational 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 educational agency under paragraph (3) of subdivision (b). The Controller shall not suspend an independent auditor under this subdivision for a period of longer than three years.

(d) The county superintendent of schools, the school district, the charter school, the chartering authority, the Controller, or the Superintendent may refer an independent auditor of a local educational agency to the California Board of Accountancy for action described in paragraph (3) of subdivision (b) if any of the following circumstances exist:

(1) An audit of a local educational 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.

(2) Material deficiencies are discovered in the quality control review conducted pursuant to this section.

(3) The continuing education requirements of Section 41020 are not met.