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Audit Resolution Process: Repayment Plans

Procedures and timelines for filing a repayment plan due to an audit exception reported in an LEA’s annual independent audit report.

On September 10, 1999, and December 1, 1999, the California Department of Education (CDE) and the Department of Finance (DOF) jointly provided information to county and district superintendents regarding the Education Code Section 41344 audit resolution process, as added by Assembly Bill (AB) 1115 (Chapter 78, Statutes of 1999).

AB 1115 established procedures for addressing apportionment significant audit exceptions reported in audits finalized after July 7, 1999.This process provides for appeals of audit findings, and for repayment, at the next principal apportionment, of any amount owed to the State as the result of an audit finding. In addition, AB 1115 provides that the State Superintendent of Public Instruction and the Director of Finance may establish a repayment plan if they concur that payment of the full liability in the current fiscal year would constitute a severe financial hardship for the local educational agency (LEA).

Repayment plans are to be of equal annual payments over a period of up to eight years and shall include interest on each year's outstanding balance at the rate earned on the state's short term pooled money investment fund. Notification of such a repayment plan must be given to the State Controller's Office.


Two repayment plan options are available:

  • Option One
    • Plans are automatically approved if an audit finding is greater than 1% of the LEA's total General Fund expenditures, transfers out, and uses.
    • Dependent on the amount of the audit finding in relation to the size of the LEA's budget.
    • Minimal paperwork necessary.
  • Option Two
    • Available should the minimum guarantee approach of Option One is not viable.
    • Supporting documentation required.

Procedures specific to each option are described below:

Option 1 Repayment Plan

If the amount owed to the State as a result of any audit finding is greater than 1% of the LEA's total General Fund expenditures, transfers out, and uses, as reflected in the most recent annual audit report, then the LEA automatically qualifies for an Option 1 repayment plan, as follows:

Audit Finding as a %
of total General Fund Expenditures
Number of years over which
repayment would be made
Between 1% and 2% 2
Between 2% and 3% 3
Between 3% and 4% 4
Between 4% and 5% 5
Between 5% and 6% 6
Between 6% and 7% 7
Greater than 7% 8

If an LEA is interested in taking advantage of this automatic repayment plan, a letter detailing your request should be submitted to the CDE. Districts should provide a copy of this request to their county office of education. Charter schools should provide a copy of the request to their authorizing LEA.

Option 2 Repayment Plan

For those LEAs that believe the above "formula driven" Option 1 will result in a fiscal hardship, Option 2 provides the flexibility to establish a unique repayment plan to address the LEA's particular needs. However, the LEA will need to support such a request with documentation as follows:

  1. The number of years (not to exceed eight) for repayment that the LEA is requesting.
  2. A narrative explaining the financial need for the extended repayment period, including the impact to the LEA if the extended repayment period is not established.
  3. The most recent adopted budget  or most recently approved interim report, whichever is most current, and the corresponding multiyear projections. Any budget, report or projections should have been reviewed and approved by the county office of education for school districts, or approved by the CDE for county offices.
  4. Financial projections illustrating the mitigated impact of payments spread over the requested repayment period.
  5. For districts, a letter from their county offices of education indicating that without such a repayment plan the district would face severe financial hardship. For charters, a letter from the authorizing LEA indicating that without such a repayment plan the charter would face severe financial hardship.

Please note that all projections should include:

  • expenditures and revenues by major object group and components of ending fund balance.
  • funding obligations such as significant long-term debt and all assumptions, such as average daily attendance growth, cost of living adjustments, and negotiated or possible salary increases.


The CDE and DOF must jointly review any repayment plan request, and notify the State Controller's Office of their approval of any repayment plan. LEAs submitting requests shall request a repayment plan within 90 days of receiving the final audit report or review, within 30 days of withdrawing or receiving a final determination regarding an appeal pursuant Education Code Section 41344(d), or, in the absence of an appeal pursuant to Education Code Section 41344(d), within 30 days of withdrawing or receiving a determination of a summary review pursuant to Education Code Section 41344.1(d). We recommend that Option 1  requests be submitted within 60 days of the final audit, in order to allow time to process the requests. For those LEAs requesting repayment plans pursuant to Option 2, it is important that the requests be submitted as quickly as possible to ensure that the CDE and DOF have adequate time for their review. We recommend that such requests be submitted within 30 days of the final audit. This will give us time to review the requests and, should additional information be needed, allow the LEAs to provide that additional data in time to meet the next principal apportionment.

If an LEA appeals an audit finding, a repayment schedule will not commence until the Education Audit Appeal Panel reaches a determination.

Please submit Education Code Section 41344 audit repayment requests to or to the following address:

California Department of Education
School Fiscal Services Division
Categorical Allocations & Audit Resolution Office
1430 N Street, Suite 3800
Sacramento, CA 95814

If you have any questions or if we can be of further assistance, please contact the School Fiscal Services Division, Categorical Allocations & Audit Resolution Office by phone at 916-327-0538, by fax at 916-327-6157, or by email at

Questions:   Categorical Allocations & Audit Resolution Office |
Last Reviewed: Wednesday, March 01, 2023
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