Controller Malia M. Cohen Thanks Governor Newsom for Signing AB 126 (Committee on Budget) to Strengthen Financial Oversight of California Schools

Legislation incorporates key recommendations from the Controller’s Charter School Audits Task Force to improve audit quality, transparency, and fraud detection

SACRAMENTO — Today, State Controller Malia M. Cohen thanked Governor Gavin Newsom for signing AB 126, legislation that strengthens financial oversight of California’s local educational agencies by implementing most of the recommendations developed by the San Diego court-ordered Charter School Audits Task Force chaired by Controller Cohen.

The legislation builds on recommendations developed following the 2019 Academic Arts and Action Education (A3) Network fraud, a $400 million scheme that resulted in the prosecution of 11 individuals and exposed significant weaknesses in the oversight of charter school finances.

Controller Cohen chaired the multidisciplinary Charter School Audits Task Force, which released its report, Audit Best Practices for Detecting and Curtailing Charter School Fraud, in September 2024. While the Task Force focused on charter schools, the majority of its recommendations apply broadly to all local educational agencies and are intended to improve audit quality, strengthen fiscal oversight, increase transparency, and enhance the early detection and curtailment of fraud.

“Every dollar intended for California’s students should reach the classroom and not lost to fraud, waste, or abuse. Public trust depends on strong financial oversight, and this legislation gives California better tools to strengthen accountability, improve transparency, and detect fraud before it diverts resources from the students who need them most,” said Controller Cohen.

“Governor Newsom’s signing of AB 126 is an important step forward in protecting public education funds through greater transparency and accountability,” San Diego County District Attorney Summer Stephan said. “I’m proud that the recommendations developed by the Multi-Agency Charter School Audits Task Force that was led by State Controller Malia Cohen helped shape this legislation. By continually strengthening oversight and improving fiscal safeguards, California is working towards ensuring that taxpayer dollars are used responsibly on educating our students. This collaborative effort used the real-life lessons from my office’s prosecution of the largest educational fraud case in our state – it demonstrates that when agencies work together with a shared commitment to integrity and fiscal responsibility, we can put forward reforms designed to benefit students, families, and communities across California.”

“This is wonderful news for California’s students and taxpayers. This legislation demonstrates that meaningful reforms are possible when public officials work together with a shared commitment to accountability and transparency,” stated Successor Receiver William R. Ayres. “I am grateful to Governor Newsom and the Legislature for enacting these important safeguards, and I want to recognize the outstanding collaboration of State Controller Malia Cohen, the San Diego County District Attorney’s Office, the members of the Charter School Audits Task Force, and to my legal counsel representatives. This was truly a team effort, and California is better served because of it.”

Among the key reforms included in AB 126 are:

• Enhanced training, qualification, and experience requirements for Certified Public Accountants conducting local educational agency audits, including 16 hours of local educational agency-specific training every two years and a minimum of two years of relevant audit experience.
• Expanded authority for the State Controller’s Office to conduct quality control reviews of audit working papers to verify compliance with professional auditing standards.
• Additional authority to remove auditors from the State Controller’s approved list for up to three years when performance or compliance standards are not met.
• Improved notification requirements when local educational agencies change CPA firms or submit audits after statutory deadlines.
• Stronger audit procedures within the California K-12 Audit Guide, including enhanced review of related-party transactions, communications with oversight agencies during audit planning, and strengthened audit sampling requirements.
• Expanded financial reporting and disclosure requirements, including separate reporting of charter school financial information, disclosure of charter school governing board members and related entities, identification of the five highest-paid employees, reporting of the 25 largest payments or transfers of assets, and enhanced reporting of student enrollment and attendance data.

The strengthened audit requirements and expanded transparency measures will provide oversight agencies and the public with more meaningful financial information while improving California’s ability to detect and curtail fraud and safeguard public education resources.

Background

In 2019, the San Diego District Attorney’s Office prosecuted 11 individuals associated with the Academics Arts and Action Education (A3) network which was comprised of 19 charter schools. The 11 individuals were involved in falsely enrolling students, manipulating enrollment figures, and funneled approximately $400 million in revenues into companies controlled by the A3 operators. In response to the A3 fraud case, San Diego Superior Court Judge Robert C. Longstreth signed a court order on September 21, 2023, granting a motion to approve the formation of the Multi-Agency Charter School Audits Task Force and designated the State Controller as Chair of the Task Force. The primary objective of the Task Force was to examine the audit functions of California charter schools and to develop comprehensive guidelines to assist charter school authorizers, the county offices of education, the California Department of Education, and the State Controller’s Office to promptly identify financial issues or misconduct.

As the chief fiscal officer of the fourth-largest economy in the world, California State Controller Malia M. Cohen independently oversees and manages the state’s financial resources with integrity and transparency to build trust. Controller Cohen is responsible for accountability and disbursement of the state’s financial resources. She has independent auditing authority over government agencies that spend state funds. The Controller is a member of numerous financing authorities, and fiscal and financial oversight entities including the Franchise Tax Board. She also serves on the boards for the nation’s two largest public pension funds. Follow the California State Controller’s Office on X, Facebook, and YouTube at @CAController and on Instagram at @CaliforniaController.

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