Sacramento, CA — A scathing report from the California State Auditor has designated Governor Gavin Newsom’s administration and eight state agencies as “high-risk” for waste, fraud, abuse, or mismanagement, highlighting systemic failures that could total tens of billions of dollars in mishandled taxpayer funds.
The December 11, 2025 audit points to serious breakdowns in oversight across critical state programs, including unemployment benefits, homelessness initiatives, and the long-stalled high-speed rail project. The findings come amid growing public frustration and bipartisan calls for greater transparency. The report, part of the State High-Risk Audit Program, identifies vulnerabilities that have persisted despite repeated warnings from auditors over several years.
Among the most alarming findings is the Employment Development Department (EDD), which auditors flagged for up to $32 billion in potential unemployment fraud. Much of the suspected fraud is tied to pandemic-era payouts that lacked sufficient safeguards to prevent abuse.
The Department of Finance was also criticized for failing to adequately track $24 billion allocated to homelessness programs. Despite the surge in spending, California’s homeless population has continued to rise, raising questions about the effectiveness and accountability of the programs funded.
The California High-Speed Rail Authority was cited for spending approximately $18 billion on planning and studies without completing any operational rail segments. Auditors noted that the prolonged delays and escalating costs raise serious concerns about efficiency and potential misuse of public funds.
Other agencies on the high-risk list include the Department of Social Services, which oversees CalFresh benefits and has experienced billions of dollars in improper payments. The report also highlights entities responsible for managing roughly $285 billion in federal funds distributed during the COVID-19 era, warning that weak controls increase the risk of significant losses.
According to the audit, the number of high-risk designations has doubled during Governor Newsom’s tenure, reinforcing what critics describe as a “systemic collapse” in state governance and financial oversight.
The findings gained national attention after investigative YouTuber Nick Shirley discussed government fraud on the All-In Podcast. Shirley, who recently uncovered alleged daycare fraud in Minnesota, suggested that California may be facing “massive fraud” within its homelessness and high-speed rail programs, claiming large sums of money are disappearing without measurable results.
Shirley also said he has faced threats and professional backlash for his reporting, including criticism from legacy media outlets that labeled him a “conservative YouTuber.” He announced plans to expand his investigations into California, potentially with whistleblower support, stating, “The fraud is crazy in California, and they have the highest taxes.”
Political reactions to the audit have been swift and sharply divided along partisan lines. Republican Representative Kevin Kiley addressed the House floor, declaring California the “fraud capital of America” based on the auditor’s findings and calling for federal intervention.
On the Democratic side, Representative Ro Khanna broke ranks by publicly advocating for a full independent audit of state spending under Newsom. Citing recent fraud revelations in Minnesota as a warning sign, Khanna emphasized the need for bipartisan hearings and new legislation to strengthen taxpayer accountability.
Governor Newsom’s office pushed back against the criticism, asserting that the administration has implemented preventive measures such as enhanced fraud detection systems and increased prosecutions. A spokesperson highlighted ongoing efforts to recover misspent funds and argued that some figures cited by critics—such as claims of $76 billion in total potential losses—may be inflated or reflect broader mismanagement rather than direct fraud.
Despite these assurances, the administration has resisted calls for a comprehensive external audit, maintaining that existing internal reviews are sufficient.
Meanwhile, social media has amplified the controversy, with users across platforms demanding audits and circulating clips from the podcast discussion. Some posts warned that California’s alleged fraud could surpass Minnesota’s, while others speculated about potential connections to unrelated issues such as voter rolls and migrant support programs.
Experts caution that without meaningful corrective action, the state risks jeopardizing federal funding and worsening its fiscal challenges. While the audit recommends stronger internal controls and regular evaluations, whether those reforms will be fully implemented remains uncertain. As investigations potentially expand, the controversy underscores broader debates over government efficiency and accountability in the nation’s most populous state.
