State Auditor Finds Additional “High Risk” to California

A new report from State Auditor Grant Parks designated California’s Employment Development Department as “high-risk” to the state because of “inadequate fraud prevention and claimant service, as well as a high rate of overturned eligibility decisions in its unemployment insurance program.” That got attention because the “billions of dollars” in fraudulent unemployment benefits occurred on the watch of Julie Su, former secretary of California’s Labor and Workforce Development Agency, and Joe Biden’s pick for federal labor secretary. 

The EDD was “unable to accurately quantify its inappropriate UI payments, contributing to the delayed publication of California’s financial statements for the two most recently published fiscal years and to modified audit opinions on those statements.” As taxpayers should know, there’s more to it. 

According to the auditor, the “high risk” designation derives from waste, fraud, abuse, or mismanagement at a level posing “substantial risk” to the state and its residents. In turn, the agencies responsible for resolving the problems “are not taking adequate corrective actions to prevent the risk or its effects.” Retained on the list of high-risk agencies and issues is state management of federal COVID-19 funds.

The scale and use of the funding “led to the high risk of inefficiencies and fraud occurring in programs supported by COVID-19 funds.” Eleven high-risk audits of fund management “resulted in 85 recommendations to departments, of which 37 remain unimplemented.”

The auditor also flagged the Financial Information System for California, known as FI$Cal. Timely and accurate financial statements are essential for the state to “sustain the trust of financial markets and maintain a high credit rating.” Late financial statements “also create a risk to the State’s access to billions of dollars in federal funding.” 

The California Department of Technology (CDT) projects as high risk because of “the number of costly and complex projects that were underway and the state’s history of failed IT projects.” CDT’s oversight of IT projects “has yet to demonstrate significant improvement and will therefore remain on the state high-risk list.”

The Department of Health Care Services remains a high-risk agency “because it had not corrected discrepancies in its Medi-Cal eligibility system that had resulted from suspended efforts during the COVID-19 public health emergency and that the problem had continued to grow.” The State Auditor finds a “lack of demonstrated progress” in resolving the problems, and so forth. On the other hand, this report has a substantial upside. 

Previous State Auditor Elaine Howle, who retired in 2021, was a tough act to follow. In 2017, Howle revealed that University of California president Janet Napolitano maintained a hidden slush fund of $175 million at a time when the UC was raising tuition and demanding more money from the state.

Howle rode herd on the state’s vaunted “bullet train,” which carries no passengers but maintains a Sacramento headquarters and three regional offices. The auditor titled her report California High-Speed Rail Authority: Its Flawed Decision Making and Poor Contract Management Have Contributed to Billions in Cost Overruns and Delays in the System’s Construction. 

Howle also called out the state Employment Development Department. As the title of the audit explained, EDD’s Poor Planning and Ineffective Management Left it Unprepared to Assist Californians Unemployed by COVID-19 Shutdowns. On that theme, Grant Parks seems to have picked up the torch, but much work remains. 

As we noted, the state Department of Motor Vehicle cries out for an audit. Still, legislators and government unions wouldn’t let Elaine Howle near the place. If California is serious about accountability, Grant Parks and his team should be unleashed on the DMV.