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State law authorizes the California State Auditor to develop a state high-risk government agency audit program.  The office implemented this program to improve the operation of state government by identifying, auditing, and recommending improvements to state agencies and statewide issues at high risk for waste, fraud, abuse, or mismanagement or for having major challenges associated with their economy, efficiency, or effectiveness.

It first designated the State’s management of federal funds related to COVID-19 as a high-risk statewide issue in August 2020 based on the significant amount of funding granted to the State, the urgent need for the funding, and the rapid nature of the allocation of this funding to state departments, among other factors

In the new August 19 report, the State Auditor Elaine Howle voiced concern regarding the state’s mismanagement of $71 billion in federal COVID-19 funding.

An audit report released on Thursday indicated that the state’s Finance, Employment Development and Public Health departments should remain at the top of the list of issues which pose a risk to the state’s financial health as a result of mismanagement.

It reported in January 2021 (2020-628.2) that significant weaknesses in EDD’s approach to fraud prevention had led to billions of dollars in improper unemployment benefit payments. EDD 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 antifraud 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.

In September 2020, because of fraud concerns, EDD directed Bank of America to freeze 344,000 debit cards (accounts) that it used to provide benefit payments to claimants. However, EDD did not have a plan in place to ensure that it could unfreeze those accounts found to belong to legitimate claimants, and it has been slow to acknowledge its role in freezing these accounts.

In January 2021, it reported (2020-610) that Finance’s allocation of funds from the federal Coronavirus Relief Fund (CRF) had resulted in smaller counties receiving significantly less funding per person than larger counties. Finance’s inequitable allocation of CRF funds increased the risk that smaller counties’ COVID-19 related funding needs were unmet.

Its April 2021 audit (2020-612) of Public Health’s oversight of approximately $467 million in federal COVID-19 funding found that, although the State met or exceeded targets for testing individuals for COVID-19, contact tracing throughout the State lagged behind case surges that far exceeded the department’s initial planning. 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. Because of the mismanagement of federal COVID-19 funds by several state agencies, it remains a high-risk statewide issue.

The updated August 2021report indicted that these three departments were to be “retained on the high risk list.”