California State Auditor: Governor Newsom and 8 Agencies Named ‘High-Risk’

The California State Auditor published a scalding report Friday that is an unvarnished indictment of Governor Gavin Newsom and his administration. The report should have everyone living in California horrified.

The Auditor’s report finds Gavin Newsom while in his final year as governor, has upended the state’s financial structure, compromised public safety, and left the state’s infrastructure in far worse condition.

The only conclusion is that Gavin Newsom is the most unserious politician to serve as California Governor, interested only in power and control, having performed none of the executive work and actual governing.

The auditor did not pull any punches, warning that the state is headed toward much worse economic and infrastructure trouble. The next governor will be saddled with Gavin Newsom’s statewide catastrophe.

As the State Auditor says, In order to assign the “High-Risk” designation to an agency, the Auditor says waste, fraud, abuse, or mismanagement are the four following conditions that must be present.

The California State Auditor’s Updated Assessment of Issues and Agencies That Pose a High Risk to the State:

California Department of Social Services: Errors in calculating CalFresh benefits reduce program effectiveness and could increase costs to the state due to federal legislation. 

“The California Department of Social Services met our criteria to be designated as a high-risk agency, and we are adding it to the high-risk list. Because of recent changes to federal law, the State will soon be required to pay a portion of its CalFresh benefits. This cost, which could be as much as $2.5 billion in federal fiscal year 2028, is based on California’s payment error rate, which measures the accuracy of the State’s eligibility and benefit determinations. We also describe updates to the seven existing high-risk state agencies and statewide issues that include the Employment Development Department, the State’s management of federal COVID-19 funds, the State’s financial reporting and accountability, the Department of Health Care Services, information security, the California Department of Technology, and water infrastructure and availability.

The State Auditor names the California Department of Social Services as a “New High-Risk Agency.” The auditor warns that if the State does not decrease its Payment Error Rate (overpayment fraud), it will likely need to spend about $2.5 billion annually to maintain CalFresh benefits. In July 2025, the One Big Beautiful Bill Act became federal law and made changes to SNAP that will increase states’ share of SNAP costs in two ways.

The Supplemental Nutrition Assistance Program (SNAP) is a federal program, administered by the states, that provides food benefits to low‑income families, formerly known as food stamps.

The Employment Development Department is also a “High‑Risk Agency.” The Auditor warns that The Employment Development Department Continues to Struggle with Improper Payments, Claimant Service, and Eligibility Decision Appeals. The Auditor added the EDD to the high‑risk list in 2023 because of inadequate fraud prevention and claimant service, including a high rate of overturned eligibility decisions in its UI program. In their January 2021 report, the Auditor explained that the EDD’s “significant missteps and inaction related to fraud prevention during the pandemic led to billions of dollars in unemployment benefit payments that EDD later determined may have been fraudulent.”

The Auditor’s assessment is that the EDD continues to be a high‑risk agency because of insufficient improvement in managing its UI program as the EDD continues to have high rates of improper UI payments, including fraudulent payments. You can’t make this stuff up! And they report that the EDD provides crappy customer service to recipients: “claimants still face difficulty receiving timely payment and often call EDD multiple times for help with their claims.”

The California Department of Finance and Various Agencies are “High-Risk Statewide Issues.” It is notable that the Department of Finance serves as the Governor’s chief fiscal policy advisor – they only work for the Governor. The Auditor says the Finance Department’s late financial reporting remains a High-risk issue, as financial reporting “is of vital importance to the State and its residents.”

“The State’s financial statements for fiscal years 2021–22, 2022–23, and 2023–24 were issued in March 2024, December 2024, and September 2025, respectively. Although these recent ACFRs have been issued much sooner than in prior years, the State’s continued inability to produce timely financial reports represents a state high‑risk issue.”

The Auditor says that the Finance Department’s mismanagement of federal COVID‑19 funds continues to represent a significant risk to California and its residents and will therefore remain a high‑risk statewide issue:

As part of its response to the COVID‑19 pandemic (pandemic), the federal government provided the State with $285 billion in federal COVID‑19 funds over the course of two years. The accompanying need to create new programs and to support significant expansion of benefits under existing programs in a short time posed a risk that the State would not manage the funding effectively. As a result, we initially designated the State’s management of these funds as a statewide high‑risk issue in August 2020(this is a pdf file). However, most of the federal awards to the State have now expired. In fact, the State’s active grants as of July 2025 comprised $37 billion, representing 13 percent of the $285 billion it was awarded. Further, data from the Department of Finance show that the State has spent about $35 billion of active grants, leaving about $2 billion available to spend.

The State Auditor said they “performed 11 state high‑risk audits of agencies and programs that received the substantial influx of funding and found that they frequently experienced significant hurdles in using those funds. In total, the 11 audits resulted in 85 recommendations. For example, our audit of the Board of State and Community Corrections found that it had allocated funds to the California Department of Corrections and Rehabilitation without justifications and that its allocation methodology did not consider important elements, such as the impact of the pandemic. Of the 85 recommendations we made among the 11 audits, 20 remain unimplemented.”

The California State Controller’s Office and Various Agencies—”High-Risk Statewide Issue.”

The Auditor explains that a key method the State uses to provide fiscal oversight and transparency is the mandatory Annual Comprehensive Financial Report (ACFR) that the State Controller’s Office prepares. The ACFR is composed of financial information from the State’s many departments and agencies, which collectively represent the financial position of the State.

In its January 2020 Report, “the State Auditor added to the state high‑risk list the State’s inability to produce timely financial reports during the transition to FI$Cal. At the time, we noted that since fiscal year 2017–18, the State had issued financial statements late, which could affect the State’s credit rating. The COVID‑19 pandemic also created new financial complexities that affected the State’s financial reporting, such as the increased pandemic‑related spending by EDD and its UI fund. In our previous assessment of high‑risk issues(this is a pdf file), we noted that the State Controller issued the State’s financial statements for fiscal year 2020–21 later than in previous years—12 months after its traditional deadline and six months after a general extension on financial reporting that the federal government provided because of the pandemic. We also noted that the State’s ACFR for fiscal year 2021–22 had not yet been issued, as of August 2023.”

The Department of Health Care Services —High-Risk Agency.

The Department of Health Care Services has not adequately demonstrated progress to resolve problems with Medi-Cal eligibility determinations. The Auditor issued two reports in 2018 and 2020, “which both identified discrepancies in Medi‑Cal eligibility records resulting in at least $4 billion in questionable payments. We also found that Health Care Services had suspended the processes it used to ensure that county welfare agencies addressed eligibility discrepancies.”

The Auditor says as of April 2025, the number of eligibility discrepancies between the county and state eligibility systems remains only somewhat below the level that they identified in 2021 that was estimated to have caused the State to disburse $1.9 billion in questionable payments.

The California Department of Technology—High-Risk Agency.

The state’s information security remains a High-Risk issue, the Auditor reports. As the text box shows, we first identified information security as a high‑risk issue in September 2013 and have continued to consider it a high‑risk issue:

2013: Technology was performing limited reviews of the security controls that reporting entities had implemented (Report 2013-601)

2015: Many reporting entities had poor controls over their information systems (Report 2015-611)

2018: Although Technology had made progress improving its oversight, information security remained a high‑risk issue because of continued deficiencies in information security controls (Report 2017-601)

2020: Information security remained a high‑risk issue because of continued deficiencies in information system controls (Report 2019-601)

2021: State entities had not demonstrated adequate progress toward addressing deficiencies in their information system controls (Report 2021-601)

2023: Technology had yet to determine the effectiveness of the State’s information security programs, had limited capacity to conduct IT audits, and had not sufficiently improved its oversight of information security (Reports 2022-114 and 2023-601)

Additionally, the Auditor warns that the CA Department of Technology has not made sufficient progress in its oversight of State IT projects. (Ya think?)

The Department Of Water Resources and the California Governor’s Office of Emergency Services—High-Risk Statewide Issue.

The Auditor reports “California’s deteriorating water infrastructure and climate change may threaten the lives and prosperity of its residents and the reliability of the state’s water supply.”

The Auditor says California’s water infrastructure continues to age and require significant maintenance, an imperative issue they first presented as a high‑risk issue in a September 2013 Report, noting that the State’s investment in water infrastructure had not kept pace with its needs. The report also highlighted that the State’s water infrastructure had not seen noteworthy expansion since the 1970s.

“Historically, the State’s dams have posed a significant risk to human life and property. In 2017, the near failure of the Oroville Dam spillway led to our focus on the risk posed by dam safety. The Department of Water Resources’ (Water Resources) Division of Safety of Dams is responsible for overseeing the condition of the State’s more than 1,200 jurisdictional dams for the purpose of determining their safety.”

The Auditor also warns that State Water Project Delivery Capabilities Could Decrease by as Much as 23 Percent by 2043 – and the Number of Dams With Poor and Unsatisfactory Condition Ratings Has Increased by 73 Percent Since 2023.

49 Dams Throughout California Are Rated as Posing Extremely High Hazard to Life and Property and Are Below Satisfactory Condition

The Auditor reports that “Water Resources is striving to improve dam conditions. The Dam Safety Division indicates that since 2023, it upgraded the condition assessment of 16 dams to Satisfactory because these dams received repairs, and it removed six dams that are no longer considered state‑jurisdictional dams.”

Remember, in order to assign the “High-Risk” designation to an agency, the Auditor says the four following conditions must be present: waste, fraud, abuse, or mismanagement or the impaired economy, efficiency, or effectiveness may result in serious detriment to the State or its residents.

Lastly, the auditor noted that “this year’s state high‑risk list does not include homelessness and the State’s efforts to improve accountability over related spending. However, in April 2024, the Auditor issued an audit report—2023‑102.1, Homelessness in California: The State Must Do More to Assess the Cost‑Effectiveness of Its Homelessness Programs(this is a pdf file)—highlighting the State’s failure to collect and comprehensively report program‑specific fiscal and outcome data covering billions of dollars in state homelessness spending.⁸ If available, such data would help the Legislature identify which of the State’s various homelessness programs are the most effective and therefore warrant ongoing financial support.”

The auditor goes on to explain that “the current update to the State Auditor’s state high-risk list comes just six months into fiscal year 2025–26—the first year in which the AB 799 data described above must be collected—and about 14 months before February 2027, when state agencies and departments must submit outcome and fiscal data to Cal ICH. Therefore, it is premature to formally designate Cal ICH and the State’s efforts to enhance accountability over homelessness spending—as envisioned through AB 799—as a high‑risk issue.”

Nevertheless, “the State’s slow pace toward implementing AB 799 may cause us to add accountability over homelessness spending to our high‑risk list before our next cyclical update. During the 10‑month period from January 2025, when AB 799 became effective, through October 2025, Cal ICH has demonstrated limited progress toward completing the required planning and coordination necessary to make AB 799’s oversight reporting possible.”

If within these 2000 words you still require more detail from the California State Auditor’s thorough audit of High-Risk agencies, you may Download Audit PDF.