Welf. & Inst. Code, § 11466.21

(a) In accordance with subdivision (b), as a condition to receive an AFDC-FC rate for a foster care program operated by a provider, as defined in Section 11466, the following shall apply:

(1) Any provider who expends in combined federal funds an amount at or above the federal funding threshold in accordance with the federal Single Audit Act, as amended, and Section 200.501 of Title 2 of the Code of Federal Regulations, as implemented by the United States Department of Health and Human Services in Section 75.501 of Title 45 of the Code of Federal Regulations, shall arrange to have a financial audit conducted on an annual basis, and shall submit the financial audit to the department in accordance with regulations adopted by the department, all-county letter, or similar written instructions.

(2) Any provider who expends in combined federal funds an amount below the federal funding threshold shall annually submit a financial audit to the department pursuant to Generally Accepted Government Auditing Standards (GAGAS), and shall submit the financial audit to the department in accordance with regulations adopted by the department, all-county letter, or similar written instructions.

(3) The scope of the financial audit shall include all of the programs and activities operated by the provider and shall not be limited to those funded in whole or in part by the AFDC-FC program. The financial audits shall include, but not be limited to, an evaluation of the expenditures and accounting and control systems of the provider.

(4) The provider shall have its financial audit conducted by certified public accountants or by state-licensed public accountants, with audit designation, who have no direct or indirect relationship with the functions or activities being audited, or with the provider, its board of directors, or other governing body, officers, or staff.

(5) The provider shall have its financial audits conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States and in compliance with generally accepted accounting principles applicable to private entities organized and operated on a nonprofit basis.

(6) (A) Each provider shall have the flexibility to define the calendar months included in its fiscal year.

(B) A provider may change the definition of its fiscal year. However, the financial audit conducted following the change shall cover all of the months since the last audit, even though this may cover a period that exceeds 12 months.

(b) (1) In accordance with subdivision (a), as a condition to receive an AFDC-FC rate, a provider shall submit a copy of its most recent financial audit report, except as provided in paragraph (3).

(2) The department shall terminate the rate of a provider who fails to submit a copy of its most recent financial audit pursuant to subdivision (a). A terminated rate shall only be reinstated upon the provider’s submission to the department of an acceptable financial audit.

(3) A new provider that has been incorporated for fewer than 12 calendar months shall not be required to submit a copy of a financial audit to receive an AFDC-FC rate for a new program. The financial audit shall be conducted on the provider’s next full fiscal year of operation. The provider shall submit the financial audit to the department in accordance with subdivision (a).

(c) The department shall issue a management decision letter on audit findings resulting from a financial audit, made by the independent auditor or as a result of department review, within six months of receipt of the financial audit report. The management decision letter shall clearly state whether or not the audit finding is sustained, the reasons for the decision, and the action or actions expected of the nonprofit organization provider to repay disallowed costs, make financial adjustments, or take other action.

(d) Repeated late submission of financial audits, repeat findings in financial audits, or failure to comply with corrective action in a management decision letter may result in monetary penalties or a reduction, suspension, or termination of the provider’s rate in accordance with regulations adopted by the department, all-county letter, or similar written instructions. This subdivision shall not be construed to affect the department’s authority under other provisions of law, including, but not limited to, Part 200 of Title 2 of the Code of Federal Regulations, as implemented by the United States Department of Health and Human Services in Part 75 (commencing with Section 75.1) of Title 45 of the Code of Federal Regulations.

(e) The procedures for the departmental appeal and hearing process set forth in Section 11466.2 shall apply for audit findings in a management decision letter resulting from a financial audit pursuant to this section.