California Controller Hopeful Unveils $425 Million in Suspected Financial Mismanagement

Herb Morgan, a seasoned financial expert on a mission to become California’s next state controller, has uncovered a troubling financial scenario, exposing what he claims to be billions in fraud.

As a Republican candidate aiming to manage the state’s public funds, Morgan released a new report this week, criticizing Governor Gavin Newsom and other California officials. He alleges that the state could be at risk for up to $425 billion due to fraud, waste, and misuse of resources.

In his detailed white paper, Morgan estimates that California could face “fiscal exposure” ranging from $312 billion to $425 billion over the next five years. This exposure spans major sectors like healthcare, unemployment insurance, homelessness initiatives, and infrastructure projects.

“The report unequivocally demonstrates that despite being the wealthiest state in the wealthiest nation in history, with vast resources for compassionate services, we severely lack mechanisms to ensure funds are used correctly,” Morgan explained to The Post.

He further stated, “Throughout this process, I’ve discovered that our state not only has the highest error rates but also leads the nation in fraud incidents, with no other state even coming close.”

Morgan also remarked, “While Governor Gavin Newsom is often blamed due to his leadership position, the state controller, Malia Cohen, seems unaware of her responsibilities.” 

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.

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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.