Commentary: Auditor’s Findings Offer Ammo for Recall of Newsom

The following commentary first appeared on CalMatters.org.

State Auditor Elaine Howle periodically issues a list of “high risk” state agencies and programs, essentially warnings to governors and state legislators about festering problems needing attention.

She does so because state law requires it and so that politicians will “enhance efficiency and effectiveness by focusing the state’s resources on improving the delivery of services related to important programs or functions.” Implicitly, the assessments counter the tendency of political figures to dream up and implement new services and programs while paying scant attention to how their previous actions are performing.

Howle’s latest report was released last week and, from a purely political standpoint, the timing could not have been worse for Gov. Gavin Newsom. He’s trying to stave off a surprisingly powerful movement to recall him, and several of the report’s items provide ammunition for the pro-recall campaign’s contention that he’s been a poor manager.

The report’s most damning critique declares that “the state’s management of COVID-19 federal funds has led to inefficiency and may have resulted in substantial fraud.”

As federal pandemic aid poured into the state a year ago, Howle raised a caution flag about how it could be mismanaged. The new report expands on that warning, singling out the seemingly perpetual inability of the state to manage unemployment insurance payments as an example.

The Employment Development Department (EDD), Howle said, “did not take substantive action to bolster its fraud detection efforts for its unemployment insurance program until months into the pandemic, resulting in payments of about $10.4 billion for claims that it has since determined may be fraudulent.”

“Specifically, EDD waited about four months to automate a key anti-fraud measure, took incomplete action against claims filed from suspicious addresses, and removed a key safeguard against improper payments without fully understanding the significance of the safeguard.”

Howle didn’t mention another aspect of the EDD debacle that also has contributed to the recall movement: long delays in processing claims from unemployed workers for benefits. The agency seemingly rushed billions of dollars in payments to fraudulent claimants, some of them prison inmates, while making it difficult for legitimate applicants to receive support.

The report is also critical of the state’s lapses in tracing COVID-19 infections despite having a large grant of federal funds for that purpose.

“Fewer-than-expected tracing staff and an influx of new cases resulted in only a small fraction of COVID‑19 cases undergoing the full contact-tracing process,” the report says. “Because of the mismanagement of federal COVID‑19 funds by several state agencies, it remains a high-risk statewide issue.”

Not all of the seven high-risk issues raised by the auditor can be laid at Newsom’s door. Some of them are out of his control, such as funding gaps in the teachers’ retirement system. But he owns most of them, including mismanagement of expensive IT programs, lapses in prison inmate health care, poor oversight of the Medi-Cal system of health care for the poor, lackadaisical regulation of nursing homes, and unfunded liabilities for state employees’ health care.

The technology project issue is particularly vexing because Newsom has long portrayed himself as a high-tech maven, even writing a book suggesting that technology could expand efficiency and accountability in public services. While technology problems pre-date Newsom, the biggest project, dubbed FI$Cal (Financial Information System for California), which is supposed to be an all-encompassing financial management program, is still years behind schedule and many millions of dollars over budget.

Howle says, “the transition to FI$Cal has diminished the state’s financial reporting and accountability and affected the state’s ability to issue timely financial statements, which could lead to increased borrowing costs.”