California Watchdog Uncovers Billions in Looming Government Waste

In a comprehensive assessment released on December 11, 2025, the California State Auditor identified eight state agencies and issues as high risk, highlighting vulnerabilities that could lead to billions in potential waste, fraud, and mismanagement of public funds. This biennial report, mandated by state law, evaluates programs and departments handling significant taxpayer dollars, focusing on those posing substantial threats to California’s fiscal health and resident well-being. Drawing from audits, investigations, and data analysis, the findings underscore persistent challenges in key areas such as social services, unemployment benefits, and infrastructure, while noting some incremental progress by affected entities.

The report newly allegedly designates the California Department of Social Services as high risk, primarily due to inaccuracies in the CalFresh program, California’s version of the federal Supplemental Nutrition Assistance Program. According to the document, the program’s payment error rate stood at approximately 11 percent in federal fiscal year 2024, exceeding the national average and triggering requirements for corrective action plans since 2017. These errors, often stemming from misreported wages during applications or recertifications, reportedly reduce the program’s effectiveness in aiding low-income households. Under recent federal legislation known as the One Big Beautiful Bill Act, states with error rates above 6 percent must contribute a portion of benefit costs starting in 2028, potentially costing California up to $2.5 billion annually if the rate remains unchanged—including $1.8 billion in benefits and $600 million in administrative expenses. The department has initiated steps like evaluating third-party income verification tools and developing client education initiatives, but full implementation awaits additional staffing and funding.

Ongoing concerns at the Employment Development Department also reportedly feature prominently, with the agency retained on the list since 2023 for issues in its unemployment insurance program. The report details improper payments totaling around $1.5 billion over 2023 and 2024, including more than $500 million attributed to fraud in 2024 alone. Factors contributing to these discrepancies include underreported earnings and separation disputes, despite federal thresholds aiming for rates below 10 percent. Customer service shortcomings persist, with claimants often needing multiple contacts to resolve issues, and payment timeliness falling short of standards. The department has introduced measures such as a weekly wage reporting tool and enhanced identity verification systems, yet the auditor notes that these have not yet brought improper payment rates to acceptable levels.

Management of federal COVID-19 relief funds remains a statewide high-risk issue, with approximately $2 billion of the original $285 billion allocation still unspent as deadlines approach. The report points to $820 million already expired without use, citing examples like unutilized grants for public health and housing programs. While the Department of Finance has established oversight units and conducted internal reviews, about 20 percent of prior audit recommendations remain unaddressed, raising risks of further losses or suboptimal allocation of these resources.

Eligibility determinations in the Medi-Cal program, overseen by the Department of Health Care Services, continue to draw scrutiny, with an estimated $1.9 billion in questionable payments as of April 2025. The agency, on the list since 2007, has expanded monitoring to all counties and issued new performance standards, but the auditor emphasizes that the effectiveness of these changes is still under evaluation amid a large volume of discrepancies.

Other retained high-risk areas include the state’s financial reporting, where delays in annual comprehensive reports could jeopardize federal grants and credit ratings; information security, with many entities below maturity benchmarks; oversight of information technology projects by the California Department of Technology, marked by prolonged approval processes; and water infrastructure, where deteriorating dams and levees threaten safety and supply reliability amid climate change.

No entities were removed from the list this cycle, despite reported advancements like fraud detection tools and process improvements. The auditor recommends targeted audits to address root causes and enhance accountability, stressing the need for stronger corrective actions to safeguard public resources. This assessment arrives amid California’s projected $20 billion budget deficit for the upcoming fiscal year, amplifying the urgency of resolving these vulnerabilities to maintain efficient government operations and public trust.