Recent California audits show several state departments are struggling with internal contols in distributing taxpayer-funded grants, as federal authorities are probing potential fraud.
A 544-page report, released late last month, shows that independent auditors flagged 10 different federally-funded programs in the state that failed to follow rules for how federal grant money is spent, noted the fiscal watchdog group Truth in Accounting.
The California independent audit shows the state lacked procedures to ensure child care providers receiving federal subsidies were meeting basic federal health and safety requirements, such as CPR certification, disease prevention protocols, emergency preparedness, and pediatric care.
“The [California Department of Social Services] has not established health and safety monitoring procedures to ensure licensed-exempt providers serving children who receive subsidies comply with all applicable health and safety requirements,” the state audit says. It added that “no monitoring procedures were performed.”
A spokesperson from the California Department of Social Services did not respond to phone and email inquiries from The Daily Signal for this story.
Federal regulations require independent audits for state and local government entities receiving federal funding. Such audits are made available to Congress and federal agencies.
Independent audits should be the starting point for fraud investigation, said Sheila Weinberg, CEO of Truth in Accounting.
“If a single audit shows 10 programs that didn’t follow federal procedures, that internal controls were weak, and agencies didn’t know how the grants were spent, that’s a place to start,” Weinberg told The Daily Signal. “All state investigations should start with these audits that don’t get clean opinions.”
Last week, President Donald Trump posted on Truth Social, “California, under Governor Gavin Newscum, is more corrupt than Minnesota, if that’s possible??? The fraud investigation of California has begun.”
The Trump administration’s Department of Health and Human Services attempted to freeze $10 billion in social service funding for four states–including California–pending fraud investigations. A federal judge on Friday temporarily prevented the funding freeze.
California Gov. Gavin Newsom, a Democrat, celebrated the legal win in an X post saying: “The court saw what was obvious to us all: The King of Fraud, Donald Trump, is desperate to distract from his own failures and tried to use our children as political pawns.”
When releasing his budget proposal last week, Newsom said in a statement, “our fiscal position is stable because of years of prudent fiscal management — but we remain disciplined.”
Weinberg disagreed with Newsom’s “stable” characterization.
“California has the largest amount of debt of any state, though per taxpayer it’s not as large as some states,” Weinberg said. “But the state is in a fiscal mess with $291 billion in debt.”
The audit found California’s Employment Development Department’s administrative expense reports differed by $126.3 million from the state’s accounting records submitted to the federal government, so auditors couldn’t verify the accuracy of the reported expenses.
The state lacked a formal process to reconcile the two, prompting auditors to say they could not obtain enough reliable evidence to determine if the fund’s financial reporting was correct.
“The audit procedures also identified a lack of effective internal controls to ensure timely and accurate reporting, as there were no documented procedures or monitoring mechanisms in place to verify that subrecipient data was submitted in accordance with federal guidelines,” the audit says.
“While this finding does not prove that any money was spent improperly, it shows that weak internal controls and reporting errors can create serious uncertainty about how taxpayer dollars are tracked and managed,” the Truth in Accounting analysis says.
A spokesperson from the California Employment Development Department acknowledged inquiries from The Daily Signal for this story, but did not immediately provide a comment.
A separate review also released in December shows the Employment Development Department wasted more than $4.6 million in state funds on more than 6,200 mobile devices that were not used for four or more consecutive months from November 2020 through April 2025. This audit by California State Auditor Grant Parks also found the department paid the service fees for mobile devices that remained unused for more than four years.
The asserted lapses in the California audit amid heightened national anxiety over the stewardship of federal money. In Minnesota, one federal prosecutor estimated that welfare fraud scandals have topped $9 billion, as nearly 100 individuals have been charged so far.
California’s Crime Victim Assistance program, administered by the Governor’s Office of Emergency Services through a grant from the U.S. Justice Department, also had reporting problems, the audit found. The office did not ensure that grant recipients provided the required reports on time.
Neither a spokesperson for Newsom’s office nor a spokesperson from the Governor’s Office of Emergency Services responded to inquiries for this story.
