Herb Morgan has faced financial challenges while campaigning for governor of California.
A seasoned financial executive and Republican candidate aiming for oversight of state finances published a report this week that criticizes Governor Gavin Newsom and other California leaders, asserting the state is dealing with potential fraud, waste, and abuse totaling between $425 billion.
In his white paper, Morgan claims California has a “fiscal exposure” estimated between $312 billion and $425 billion over the next five years in major areas like health care, unemployment benefits, homelessness funding, and infrastructure.
According to Morgan, “This report clearly indicates that we are the wealthiest state in this affluent nation, possessing ample resources to deliver vital services. Yet, we lack adequate controls to ensure proper use of our funds.”
He continued, “What we’ve uncovered is that California has the highest rates of error and fraud in the nation—no other state even comes close.”
Morgan pointed out, “People tend to blame Gavin since he’s the visible leader, but the Secretary of State, Malia Cohen, is responsible for overseeing these issues, and frankly, she seems unsure of her role.”
Officials from both the governor’s office and the controller’s office haven’t responded to requests for comment.
The report estimates Medi-Cal fraud could be between $95 billion and $115 billion; unemployment insurance losses could reach $55 billion; while issues related to capital and megaprojects are estimated between $30 billion and $50 billion. Additionally, each of the programs concerning CalFresh food assistance, homelessness, and housing could have exposure ranging from $20 billion to $25 billion.
The $55 billion figure related to unemployment benefits is derived from an audit conducted on pandemic-related payments by the Employment Development Department. This audit found about $26 billion in ineligible payments was likely, along with an extra $29 billion, although auditors noted there wasn’t solid support for the methodology used to derive that additional amount.
Newsom’s office has been engaged in disagreements with Republican lawmakers and social media figures like Nick Shirley regarding fraud allegations in the state.
Many of Morgan’s findings appear to be largely based on extrapolation. For Medi-Cal, the report uses a presumed payout rate of around 10% on billions in expected spending and factors in additional costs for illegally residing immigrants. However, federal authorities emphasize that inadequate payment rates often indicate missing paperwork or administrative mistakes, not outright fraud.
In relation to CalFresh, Morgan’s report assumes an exposure of $20 billion to $25 billion based on error rates. Federal officials clarified that these error rates measure the accuracy of eligibility and benefits, not fraud, and involve both overpayments and underpayments.
Morgan’s estimates regarding homelessness are based on a state audit showing that tracking performance and expenses within California’s roughly $24 billion homelessness program is inconsistent. While the audit did highlight accountability issues, it didn’t conclude that much of the money was lost due to fraud or waste.
The insights released this week are part of the CAL DOGE initiative introduced by Republican gubernatorial candidate and former Fox News host Steve Hilton.
Hilton held a press conference in Orange County, indicating that the timing of his announcement coincided with the state’s deadline for submitting audited spending reports.
“Gavin Newsom has missed this deadline for six consecutive years, which demonstrates their lack of seriousness when handling public funds,” Hilton argued. “They don’t care about your money; they just steal it and waste it.”
The findings from Morgan, who recently retired from an investment firm with nearly 40 years in financial markets, arrive as Republicans are increasingly concentrating on issues related to fraud in California’s hospice system. Last week, the House Oversight Committee announced plans to initiate its own investigation.
