Audit Reveals California Fails Federal Oversight in Seven Programs

California’s recent state audit uncovered that the state didn’t meet federal requirements for seven out of 22 programs reviewed, with the unemployment benefits program showing “pervasive” noncompliance.

This revelation raises questions about the state’s future eligibility for billions in federal funding. The audit, conducted by Macias Gini & O’Connell LLP and summarized by Deputy State Auditor Linus Li, highlighted multiple administrative and oversight issues.

The report noted that California failed to comply materially with requirements for seven federal programs, including one with significant noncompliance. Although the state met requirements for other programs, deficiencies in accounting and administrative practices remain.

The program facing the most serious issues is California’s unemployment insurance system, managed by the Employment Development Department (EDD).

The audit discovered nearly $200 million in “potentially ineligible payments” made in 2023 alone. This is on top of an estimated $55 billion in fraudulent unemployment benefits distributed during the COVID-19 lockdown.

Among 138 pandemic unemployment assistance claims reviewed, 91 had verification problems, ranging from missing documentation to identity verification issues.

California State Assembly Minority Leader James Gallagher criticized Governor Gavin Newsom’s administration for its priorities. He stated, “While Gavin Newsom chases the national spotlight, Californians are left with an administration that can’t accomplish the basic functions of government.” Gallagher’s remarks reflect growing frustration with the state’s handling of federal funds.

The federal government is justified in scrutinizing California’s spending and deciding whether it’s wise to continue funding an administration that treats resources carelessly. The audit arrives amidst financial strains in California’s unemployment insurance fund. The California Legislative Analyst’s Office (LAO) reports a $2 billion annual structural deficit in the fund.

Additionally, California owes $20 billion to the federal government for pandemic-related unemployment claims, and it’s accruing $1 billion in interest annually.

To bridge this financial gap, the LAO suggests that payroll taxes, which fund unemployment benefits, must increase significantly. Currently, employers pay $42 per employee earning $46,800 or more annually.

To meet funding needs, this figure would need to rise to $889.20 per employee, representing a more than 21-fold increase. The audit’s findings could jeopardize federal funding for California’s programs. If noncompliance continues, the U.S. Department of Labor or other federal agencies may require repayment or reduce future allocations.

So far, no formal penalties have been announced, but the audit’s release is likely to lead to further oversight and potential investigations into the state’s federal fund usage.

The situation underscores the need for responsible financial management and accountability in government operations. California’s leadership must address these issues to restore public trust and secure necessary funding.

As it stands, California’s financial mismanagement could have serious repercussions for its citizens and businesses. It is crucial for state officials to focus on fixing these problems rather than seeking national attention. The federal oversight prompted by the audit should serve as a wake-up call for California’s administration.

The state must prioritize compliance with federal requirements to ensure continued support and funding. Responsible governance and transparent financial practices are essential to maintaining the public’s confidence. As the situation unfolds, Californians will be watching closely to see how their leaders respond to these challenges.

California’s path forward depends on addressing the audit’s findings and implementing necessary reforms. Ensuring compliance with federal standards is critical to safeguarding the state’s financial future. The audit highlights the importance of diligent oversight and accountability in government operations.