Section 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.

(Amended by Stats. 2002, Ch. 1128, Sec. 7. Effective January 1, 2003.)