Ed. Code, § 33420

(a) The Superintendent of Public Instruction, in cooperation with the Department of Finance and the State Auditor, shall, on or before July 1, 1980, provide for a plan for independent audits of state and federal funds allocated to private agencies that are under contract with the State Department of Education for the provision of educational services.

For the purpose of this article, “educational services” includes, but is not limited to, child nutrition and child development services.

To the maximum extent possible, the plan shall conform to audit procedures pursuant to Section 41020.5.

(b) Effective July 1, 1980, the State Department of Education, as a condition to any contract with a private agency for the provision of educational services, shall require a periodic audit of state and federal funds to be conducted by departmental staff auditors or a certified public accountant or public accountant who is licensed by the California Board of Accountancy. For child development services, the audit shall include all funds deposited in the child development fund. For all other educational services, the audit shall be limited to those state and federal funds accruing to the private agency as a result of its contract with the State Department of Education.

(c) If in the course of those audits of a private agency, an audit exception is reported by the certified public accounting firm in excess of a material amount as determined by the Superintendent of Public Instruction, the Superintendent of Public Instruction shall, upon final determination by the superintendent of the amount of the audit exception, collect that audit exception and redistribute the amount collected to the same class of program, or withhold the amount of the audit exception from the next payment to the agency in which the audit exception was discovered.

(d) The State Department of Education shall establish a schedule for audits that meets federal regulations.

(e) The State Department of Education may exempt from the provisions of this section those agencies for which, in the department’s estimation, the cost of an audit would be inordinate in relation to the level of funding received by the private agency for the educational services provided.