SUMMARY OF THE AUDIT FROM THE CALIFORNIA STATE AUDITOR.

Full Audit Report in Links Below.

High-Risk Audit Program report released on December 11, 2025 (and the subsequent investigations report on December 12).

The reports highlight several systemic issues that the Auditor classifies as “High-Risk” to the state’s residents and economy.

1. New High-Risk Designations

The Auditor added the Department of Social Services to the high-risk list. The primary concern is a high rate of errors in CalFresh benefits. The report warns that if these errors aren’t corrected, federal penalties and the need to maintain benefits could cost the state up to $2.5 billion annually.

2. Infrastructure and Water Concerns

One of the more alarming sections for many residents involves the state’s water security. The Auditor noted:

Deteriorating Dams: The number of dams with “Poor” or “Unsatisfactory” ratings has reportedly increased by 73% since 2023.
Water Supply: Water project delivery capabilities could decrease by as much as 23% by 2043 if infrastructure isn’t addressed.

3. Financial Waste and Mismanagement

The “Investigations of Improper Activities” report (released Friday, Dec 12) detailed specific instances of waste that many find hard to stomach:

The EDD Mobile Phone Waste: The Employment Development Department (EDD) reportedly wasted $4.6 million paying for over 6,200 mobile devices and hotspots that sat unused for months or even years.
COVID-19 Funds: The state’s management of $285 billion in federal COVID-19 funds remains on the high-risk list, with the Auditor noting significant hurdles in how those funds were tracked and utilized.

4. Ongoing Issues

The report also re-flagged long-standing problems that haven’t been resolved, including:

Medi-Cal Eligibility: Significant discrepancies in eligibility determinations.
Information Security: Ongoing vulnerabilities in state IT systems.
Late Financial Reporting: California continues to struggle with timely and accurate financial reporting, which impacts transparency.

The language used in some of the analysis—calling it an “indictment” of the current administration—reflects a deep frustration with the gap between the state’s massive budget and the tangible results in infrastructure and efficiency.

The Governor’s Office Response

1. The Governor’s Broad Defense

Governor Newsom’s team hasn’t addressed every line of the “scalding” report individually, but the 2025-26 Budget Summary serves as the administration’s official counter-narrative.

Legacy Framing: The Governor’s office emphasizes that they have managed “unprecedented turmoil” (the pandemic, stock market volatility) without broad-based tax increases while paying down long-term debt.

Budget Resiliency: In response to the fiscal mismanagement claims, the administration argues they have “balanced the books over two years instead of one” to create a clearer financial outlook, though the Auditor maintains that the state’s actual financial reporting is still dangerously late.

2. The EDD’s Response (The $4.6 Million Phone Waste)

The Employment Development Department (EDD) has faced the brunt of the “waste” allegations regarding the 6,200 unused mobile devices.

The Status: The Auditor’s official tracking system lists the EDD’s response as “Pending.” * The Mandate: Under the California Whistleblower Protection Act, the EDD must provide a formal corrective action plan by February 2026 (60 days after the report).

Proposed Action: The Auditor has specifically recommended that the EDD immediately terminate all wireless accounts that have seen zero usage for more than 90 days.

3. Department of Social Services (CalFresh Risk)

Being added to the “High-Risk” list is a significant blow to the CDSS. Their response has been complicated by shifting federal laws.

Blaming Federal Shifts: The agency and its supporters have pointed to the “One Big Beautiful Bill Act” (July 2025) and other federal changes that increased the state’s financial liability for payment errors.

Operational Defense: The CDSS has indicated it is “waiting for guidance” from federal partners (USDA) regarding funding gaps, but the Auditor’s report argues the agency has failed to address a high “payment error rate” that has existed for years.

4. Department of Water Resources (Dams and Infrastructure)

The administration’s response to the deteriorating dams and water security has been to point toward long-term projects currently in the “environmental review” phase.

What Now

The 60-Day “Clock” for Agencies

Under the California Whistleblower Protection Act, any agency named in the report (like the EDD or the Department of Social Services) must provide a formal response to the Auditor within 60 days.

Corrective Action Plans: Agencies must detail exactly how they will implement the Auditor’s recommendations (e.g., the EDD terminating unused phone lines or CDSS fixing CalFresh error rates).

Monthly Updates: After that initial 60-day response, agencies are required to report monthly on their progress until the Auditor is satisfied that the “improper activity” has been resolved.

Legislative Hearings (Early 2026)

The Joint Legislative Audit Committee (JLAC) typically holds public hearings following major reports.

Public Testimony: Lawmakers will call agency heads to testify under oath about why these failures occurred and how they are spending taxpayer money.

Legislative Fixes: If the Auditor found that current laws are preventing efficiency (like the complex federal/state data sharing for Medi-Cal), the Legislature may introduce new bills in the 2026 session to “un-stick” those processes.

Continuous Monitoring

The “High-Risk” designation is not permanent, but it is very difficult to remove. The State Auditor will:

Keep these agencies on the “High-Risk” list until they demonstrate sustained improvement.
Conduct follow-up audits (often 1–2 years later) to verify if the “corrective actions” were actually performed or if the agencies just gave lip service to the findings

Potential Federal Intervention

For issues like CalFresh (Department of Social Services), where the Auditor warned of a $2.5 billion annual liability, the federal government (USDA) may step in with “Corrective Action Plans” of their own. If the state doesn’t lower its error rate, the federal government can withhold administrative funding or levy massive fines.