California’s state government is facing renewed scrutiny after the state’s independent auditor placed several agencies under Governor Gavin Newsom’s administration on a high-risk watch list — citing ongoing failures that could cost taxpayers billions of dollars.
In its latest high-risk assessment, the California State Auditor warned that unresolved problems across multiple departments continue to threaten public funds, data security, and even public safety. The report highlights persistent weaknesses in benefit programs, unemployment oversight, financial reporting, cybersecurity, and critical water infrastructure.
State Auditor Grant Parks said these issues are not new — and in many cases have worsened despite repeated warnings and corrective plans. Eight state agencies remain on the high-risk list, a designation reserved for programs vulnerable to fraud, waste, abuse, or major operational breakdowns.
Billions at Risk From Benefit Program Errors
One major addition to the list this year is the California Department of Social Services. The audit found ongoing errors in the administration of CalFresh, the state’s food assistance program, combined with changes in federal law, could force California taxpayers to absorb significant costs.
According to the auditor, if error rates are not reduced, the state’s financial exposure could reach as much as $2.5 billion by fiscal year 2028. The report cited a nearly 11 percent payment error rate in federal fiscal year 2024 — a level considered unacceptable under federal standards.
Agency officials disputed the classification, arguing the potential costs stem from federal policy changes rather than state mismanagement. The auditor disagreed, concluding the program still meets the legal criteria for high-risk status.
Unemployment Fraud Still a Problem
The audit also renewed criticism of the Employment Development Department, which oversees California’s unemployment insurance system. Despite national attention following massive pandemic-era fraud, auditors found improper payments remain widespread.
The report estimates that about $1.5 billion in unemployment benefits were improperly paid during calendar years 2023 and 2024, including fraudulent claims.
Financial Transparency and Cybersecurity Failures
California’s financial reporting was once again flagged as a high-risk concern. Auditors warned that repeated delays in releasing audited financial statements undermine transparency and could eventually threaten federal funding.
The state has struggled to produce timely and reliable reports since transitioning to the FI$Cal accounting system, with the most recent audits released months after required deadlines.
Cybersecurity weaknesses were also highlighted. Despite California’s role as a global technology leader, many state agencies still fail to meet minimum security standards, leaving sensitive government systems exposed to cyber threats.
Aging Dams and Public Safety Risks
The audit also raised red flags about the state’s water infrastructure, noting that 49 dams deemed below acceptable condition are labeled as carrying “extremely high” downstream risk, where a collapse could lead to severe loss of life or widespread property damage.
Whistleblower Reports Reveal Waste
Separate whistleblower investigations detailed additional waste across agencies operating under the Newsom administration. One investigation found the Employment Development Department paid more than $4.6 million in service fees for thousands of unused mobile devices.
Another case cited an agency that overpaid an employee for more than a year after leave balances were exhausted, resulting in over $170,000 in improper payments.
A Pattern of Unresolved Problems
The auditor concluded that these findings reflect long-standing, systemic weaknesses that have persisted for years. Despite repeated warnings and reform plans, many of the same problems remain unresolved — raising ongoing concerns about accountability, fiscal discipline, and responsible governance in California.