Damning breakdown of California’s alleged fraud — and where your cash is being burned

Herb Morgan has gone down a disturbing financial rabbit hole in his quest to be California’s next state controller, revealing billions of dollars in alleged fraud.

The longtime financial executive and Republican candidate seeking to oversee public dollars issued a new report slamming Gov. Gavin Newsom and other California officials this week, claiming the state faces up to $425 billion in exposure for fraud, waste and abuse.

Morgan notes in a white paper that California has between $312 billion and $425 billion in “fiscal exposure” over five years across major programs including health care, unemployment insurance, homelessness spending and infrastructure.

“What the report shows without question is that while we’re the richest state in the richest country in the history of the human race — and we have massive resources to deliver services of compassion — yet we lack any kind of controls to track the proper usage of funds,” Morgan told The Post.

“What I’ve learned in this process is we have the highest error rates and the highest fraud rates of any state in the country, and no one else is close.”

He added: “We all blame Gavin because he’s top of the ticket, but the state controller [Malia Cohen], she doesn’t even know what she’s supposed to do.” 

Officials for the governor’s and controller’s offices did not immediately respond to a request for comment.

The report suggests $95 billion to $115 billion in exposure tied to Medi-Cal, $55 billion in unemployment insurance payments, $30 billion to $50 billion in capital projects and megaprojects, and $20 billion to $25 billion each in CalFresh food aid, homelessness and housing programs.

The most concrete figure cited — $55 billion in unemployment insurance — comes from a California State Auditor report examining pandemic-era payments by the Employment Development Department. 

An analysis found the agency estimated $26 billion in ineligible payments and later added another $29 billion, though auditors said the methodology behind the additional estimate was not fully supported.

Newsom’s office has sparred with Republicans as well as social media influencers like Nick Shirley over issues of fraud in California.

Much of Morgan’s other findings appear to rely on extrapolation.

On Medi-Cal, the report applies a roughly 10% improper-payment rate to hundreds of billions in projected spending, then adds tens of billions more for coverage of undocumented immigrants. 

However, federal officials have emphasized that improper-payment rates do not measure fraud and often reflect missing documentation or administrative errors rather than ineligible recipients.

Download The California Post App, follow us on social, and subscribe to our newsletters

The report similarly estimates $20 billion to $25 billion in exposure in CalFresh based largely on error rates. Federal officials have said those error rates measure accuracy of eligibility and benefit calculations, not fraud, and include both overpayments and underpayments.

Morgan’s homelessness estimate also leans on a widely cited state audit that found California failed to consistently track outcomes and spending across roughly $24 billion in programs. The audit highlighted accountability gaps but did not conclude that most of that funding was lost to fraud or waste.

The findings unveiled this week are part of the CAL DOGE initiative launched by Steve Hilton, a Republican candidate for governor and former Fox News host. 

Hilton held a press conference Tuesday in Orange County in which he noted that the timing of the announcement coincided with the state’s deadline for a report on the state’s audited spending.

“Gavin Newsom has missed that deadline for the last six years, which shows you how seriously they take their responsibility to be prudent with public money,” Hilton said.

“They don’t care about your money, they just steal it and waste it.”

The report from Morgan — a recently retired investment executive with nearly four decades of experience in financial markets — comes as Republicans call more attention to issues around hospice fraud in California.

Last week, the House Oversight Committee announced it was launching its own probe.