Proposition 28- AMS Financial & Audit Requirements

Annual audits of kindergarten through grade twelve local educational agencies (LEAs) conducted in accordance with California Education Code (EC) Section 41020 shall include funds received and distributed by the local educational agency (LEA) pursuant to Proposition 28—The AMS Funding Guarantee and Accountability Act (EC Section 8820) and shall include a determination of whether the funds were expended pursuant to statutory requirements.

For the purpose of this program, LEA includes school districts, charter schools, and county offices of education. Charter schools are responsible for meeting all statutory requirements independent of their authorizer.

Conditions of Receipt of Funds

As a condition of receipt of AMS funds, each LEA shall annually do all the following:

1. Certify that all funds will be used to provide arts education programs and that funds expended in the prior fiscal year were, in fact, used for those purposes, except as provided in 3.
   
   
   1. For LEAs with an enrollment of 500 or more pupils, the certification shall also ensure that at least 80 percent of funds to be expended will be used to employ certificated or classified employees to provide arts education program instruction and that the remaining funds will be used for training, supplies and materials, and arts educational partnership programs, unless a waiver of this requirement has been granted.
      
      
2. Certify that such funds received will be used to supplement funding for arts education programs and that funds expended in the prior fiscal year were, in fact, used to supplement arts education programs.
   
   
3. Certify that no more than 1 percent of funds received will be used for an LEA’s administrative expenses, including indirect costs, to implement this chapter and that funds received in the prior fiscal year were, in fact, used within that limit.
   
   
4. Submit an annual board- or body-approved report in a manner determined by the Superintendent, that shall be posted on the LEA’s and the California Department of Education’s (CDE’s) internet websites and details the type of arts education programs funded by the program; the number of full-time equivalent teachers, classified personnel, and teaching aides; the number of pupils served; and the number of school sites providing arts education programs with those funds.

Expenditure Period

Funds are apportioned annually and are available for use for up to three fiscal years. By October 1 after the three-year expenditure period concludes, the total amount of unexpended funds from the apportionment must be reported to the CDE. The CDE is in the process of developing a reporting tool for this purpose. Unexpended funds will be collected by the CDE and reallocated to all LEAs in the subsequent fiscal year. The CDE may withhold the release of an LEA’s next apportionment until it has submitted the required expenditure report (EC Section 8820[f]).

Example

Funds apportioned to LEAs in Fiscal Year (FY) 2023–24 may be expended through June 30, 2026. By October 1, 2026, each LEA must report to CDE its total eligible expenditures from its FY 2023–24 allocation. The amount of unexpended funds, if any, will be subsequently collected by CDE.

Financial Reporting

Local Educational Agency-Level Reporting

While funding is calculated by CDE at the school site level, and the LEA is required to allocate funds to eligible school sites in the amounts calculated by the CDE, financial reporting to the CDE and compliance with the conditions of receipt of funds described above occur at the LEA level.

Accounting Guidance

Standardized Account Code Structure (SACS) Resource Code 6770 has been established for AMS funding. The associated SACS Revenue Code is 8590.

The CDE recommends LEAs that receive AMS allocations consider the following general guidelines to demonstrate compliance with the conditions of receipt of funds and use of funds requirements.

• Consider using locally defined SACS Resource Codes to differentiate expenditures by allocation FY.
  
  
• Consider using a locally defined SACS Function or Goal Code to identify all arts education program expenditures regardless of funding source.

Guidance regarding use of locally defined Resource, Goal, and Function Codes can be found in California School Accounting Manual (CSAM) procedures 310, 320 and 325.

Annual Audit

As part of each LEA’s annual compliance audit, the LEA’s independent auditor will verify the LEA completed the following:

• Made the required certifications
  
  
• Has posted on its website the annual board-approved report in the format prescribed by the CDE
  
  
• Provided the annual board-approved report to the CDE for posting on its website
  
  
• Expended AMS funds on eligible arts education program costs
  
  
• Used AMS funds to supplement existing funding for arts education programs
  
  
• As part of each LEA’s compliance audit for the third FY of the allowable expenditure period or for the FY the allocation is fully expended, whichever comes first, the LEA’s independent auditor will also verify:
  
  
  • At least 80 percent of the expenditures from the allocation were used to employ certificated and classified employees to provide arts education program instruction or that the LEA has a valid waiver of this requirement. (applies to LEAs with 500 or more enrollment based on the enrollment used in the allocation calculation)
    
    
  • No more than 1 percent of the expenditures from the allocation were used for administrative costs, including indirect costs

Supplement Not Supplant Requirement (California Education Code Section 8820[g][2])

Statute requires that AMS funds be used to supplement existing funding for arts education programs. Compliance with this requirement will be verified annually.

For purposes of this program:

• “Supplement” means that AMS funds shall be used by LEAs to increase funding of arts education programs and not to supplant existing funding for those programs.
  
  
• “Arts education program” includes, but is not limited to, instruction and training, supplies, materials, and arts educational partnership programs for instruction in: dance; media arts; music; theatre; and visual arts including folk art, painting, sculpture, photography, and craft arts; creative expressions including graphic arts and design, computer coding, animation, music composition and ensembles; and script writing, costume design, film, and video.

The annual audit guide contains the procedures to verify compliance with this requirement. Additionally, the CDE has developed an Excel worksheet that may be used to assist LEAs in demonstrating they have met the requirement, which is available at Arts and Music in Schools Audit Compliance Worksheets (XLSX).

Instructional Costs Minimum (California Education Code Section 8820[g][1])

Statute requires that LEAs with an enrollment of 500 or more pupils ensure that at least 80 percent of expended funds are used to employ certificated or classified employees to provide arts education program instruction, and the remaining funds are to be used for training, supplies and materials, arts educational partnership programs, and administrative costs, unless the LEA has an approved waiver of paragraph (1) of subdivision (g) of EC Section 8820.

Compliance with this requirement, referred to as the 80/20 requirement, will be verified as part of the LEA’s annual audit for the FY in which the allocation is fully expended or for the third FY of the expenditure period, whichever comes first.

The enrollment used to determine whether an LEA is subject to this requirement is the enrollment used to determine the allocation as shown on the funding exhibit for the applicable FY. Exhibits are available on the Principal Apportionment web page.

Examples of the Instructional Costs Minimum Calculation for Local Educational Agencies with 500 or More Enrollment

Example 1. LEA expended its full allocation, and expenditures comply with the 80/20 requirement.

• Total allocation for FY 2023–24 is $100,000.
  
  
• The LEA expended $100,000 of its FY 2023–24 allocation as of June 30, 2026 (the end of the three-year expenditure period), as follows:
  
  
  • $80,000 was used to employ classified or certificated employees to provide arts education program instruction
    
    
  • $20,000 was expended on other permitted uses of funds (i.e., partnership programs, contractors/consultants providing arts education, materials, and administrative costs, including indirect costs)
    
    
• $80,000 is 80 percent of total AMS expenditures for the allocation year. The LEA met the 80/20 requirement.

Example 2. LEA did not expend its full allocation, and expenditures comply with the 80/20 requirement.

• Total allocation for FY 2023–24 is $100,000.
  
  
• The LEA expended only $80,000 of its FY 2023–24 allocation as of June 30, 2026, as follows:
  
  
  • $64,000 was used to employ classified or certificated employees to provide arts education program instruction
    
    
  • $16,000 was expended on other permitted uses of funds (i.e., partnership programs, contractors/consultants providing arts education, materials, and administrative costs, including indirect costs)
    
    
• $64,000 is 80 percent of total AMS expenditures for the allocation year. The LEA is in compliance with the 80/20 requirement.
  
  
• $20,000 in unexpended funds will be reported to the CDE by October 1, 2026, and returned to the CDE.

Example 3. LEA expended its full allocation but did not expend 80 percent on eligible instructional costs. The LEA has a CDE-approved waiver and is not subject to the 80/20 requirement.

• Total allocation for FY 2023–24 is $100,000.
  
  
• The LEA expended $100,000 of its FY 2023–24 allocation as of June 30, 2026, as follows:
  
  
  • $70,000 was used to employ classified or certificated employees to provide arts education program instruction
    
    
  • $30,000 was expended on other permitted uses of funds (i.e., partnership programs, contractors/consultants providing arts education, materials, and administrative costs, including indirect costs)
    
    
• $70,000 is 70 percent of total AMS expenditures for the allocation year. The LEA has a CDE-approved waiver from the 80/20 requirement for use of funds allocated in FY 2023–24. As a result, the LEA is exempt from the 80/20 requirement for its expenditures from its FY 2023–24 allocation.

Example 4. LEA expended its full allocation but did not expend 80 percent on eligible instructional costs and does not have a CDE-approved waiver.

• Total apportionment for FY 2023–24 is $100,000 as follows:
  
  
• The LEA expended $100,000 of its FY 2023–24 allocation as of June 30, 2026, as follows:
  
  
  • $70,000 was used to employ classified or certificated employees to provide arts education program instruction
    
    
  • $30,000 was expended on other permitted uses of funds (i.e., partnership programs, contractors/consultants providing arts education, materials, and administrative costs, including indirect costs)
    
    
• $70,000 is 70 percent of total AMS expenditures for the allocation year. The LEA does not have a waiver from the 80/20 requirement. The LEA did not comply with the 80/20 requirement.
  
  
• The difference between total AMS expenditures ($100,000) and the total eligible costs ($70,000 / 80% = $87,500) are ineligible expenditures.,
  
  
• Auditor will issue an audit finding identifying the total unallowable expenditures for non-instructional costs in the amount of $12,500 ($100,000 - $87,500).

The CDE has developed an Excel worksheet that may be used to assist LEAs in demonstrating they have met the requirement, which is available at Arts and Music in Schools Audit Compliance Worksheets (XLSX).

Administrative Costs

Statute requires that no more than 1 percent of an LEA’s allocation may be used for administrative costs, including indirect costs. This is the total for each allocation. Compliance with this requirement will be verified as part of the LEA’s annual audit for the FY in which the allocation is fully expended or for the third FY of the expenditure period, whichever comes first.

The CDE has interpreted that administrative costs, as used for AMS, have the same definition of administrative costs found in Procedure 915 of the CSAM. Administrative costs include general administration, school administration, and instructional administration:

• General administration refers to agency-wide administrative activities including governing board, superintendent, and district-level fiscal, personnel, and central support services.
  
  
• School administration refers to activities concerned with directing and managing the operation of a particular school.
  
  
• Instructional administration refers to activities for assisting instructional staff in planning, developing, and evaluating the process of providing learning experiences for students.
  

Indirect costs are agency-wide general management costs not readily identifiable with a particular program but necessary for the overall operation of the agency (e.g., costs of accounting, budgeting, payroll preparation, personnel management, purchasing, warehousing, centralized data processing).

The CDE has developed an Excel worksheet that may be used to assist LEAs in demonstrating they have met the requirement, which is available at Arts and Music in Schools Audit Compliance Worksheets (XLSX).

Worksheets and Resources

The following resources are provided to assist LEAs and their auditors in determining compliance with use of funds requirements discussed above.

• Arts and Music in Schools Audit Compliance Worksheets (XLSX)
• Arts and Music in Schools Frequently Asked Questions
• Annual Audit Guide