California’s race for governor has turned into a battle over one big question: is the state losing billions of dollars to fraud? Steve Hilton, a political commentator and Republican candidate, has centered his campaign on what he calls “Califraudia.” In early 2026, Hilton’s team launched Califraud.com, a website where residents and public workers can anonymously report waste or misuse of state funds. The site quickly became the focus of his campaign to challenge Governor Gavin Newsom.
Hilton, along with Republican state controller candidate Herb Morgan, claims that up to $250 billion has been lost to fraud, waste, and abuse across programs such as Medi-Cal, CalFresh, K–12 education, housing initiatives, and unemployment insurance. That number would exceed California’s entire general fund budget of around $200 billion. No independent audit confirms the $250 billion figure, but the claim has drawn major attention and set off a statewide debate about the real scale of government waste.
Pandemic Fraud and the Unemployment Crisis
Hilton’s accusation builds on one undeniable failure: California’s unemployment system during the COVID-19 pandemic. Between 2021 and 2024, state officials admitted paying more than $55 billion in improper unemployment benefits, with about $20 billion confirmed as outright fraud involving stolen identities and fake claims. Much of that money is considered impossible to recover.
The problem extended well beyond California. According to the U.S. Government Accountability Office, states across the country paid between $100 billion and $135 billion in fraudulent or mistaken unemployment payments during the pandemic. California’s share, roughly 15 to 20 percent of that national total, made it one of the hardest-hit states. Weak systems, outdated technology, and organized criminal networks all played a role in the massive losses.
In response, the federal government has started new investigations into how states handled unemployment funds. Early in 2026, U.S. Attorney General Pam Bondi announced a National Fraud Division within the Department of Justice to coordinate these probes. Reviews are already underway in several states, including California, Minnesota, Washington, Kansas, and Louisiana. Bondi warned that those involved in fraud would face “severe consequences,” signaling a tougher national stance on pandemic-era financial abuse.
Federal Focus and Competing Claims
Adding to the drama, former President Donald Trump posted on Truth Social that “The Fraud Investigation of California has begun,” just days after Hilton’s campaign launched its Califraudia report. Although Trump did not spell out what kind of investigation was being opened or which agencies were involved, his message amplified Hilton’s claims and pushed the debate into national headlines. The FBI has not confirmed whether it has opened official corruption or fraud cases related to California, leaving both Republicans and Democrats to fill in the details to suit their arguments.
Governor Newsom’s team has dismissed the $250 billion number as fictional, accusing Hilton of twisting old data for political gain. Still, Newsom’s office has shared its own ambitious numbers, saying state agencies have blocked $125 billion in attempted fraud during his time in office. That figure also lacks independent verification.
Meanwhile, the California State Auditor, an independent agency, offers a smaller but more substantiated picture. In late 2025, the auditor labeled the governor’s office and eight state agencies as “high-risk.” The Department of Social Services faced major issues with CalFresh, estimating about $2.5 billion in annual payment errors. The Department of Health Care Services, which oversees Medi-Cal, had at least $4 billion in questionable payments due to weak verification systems. While these numbers are far below Hilton’s claims, they confirm that serious flaws exist in California’s largest programs.
Politics, Oversight, and What Comes Next
Califraudia’s crowdsourced approach is unusual, it bypasses normal government channels by asking the public, not auditors, to report fraud directly. Supporters say this gives whistleblowers a voice; critics argue it turns complex administrative problems into political talking points. Hilton and Morgan have used the reports to pressure federal authorities and shift the governor’s race toward issues of competence and accountability.
California isn’t alone in facing these problems. Minnesota, for example, is dealing with nearly $9 billion in suspected fraudulent or improper payments in its social programs, which has already triggered federal investigations. Congress has also responded by passing the Pandemic Unemployment Fraud Enforcement Act, which extends the time prosecutors have to pursue cases from five to seven years. However, the law doesn’t include dedicated funds for California, meaning the effort’s reach depends on federal priorities and resources.
Legal experts caution that not all errors equal criminal fraud. Many overpayments or mistakes in programs like Medi-Cal and CalFresh result from complex bureaucracy, high caseloads, and outdated systems rather than deliberate wrongdoing. Investigators will need to prove intent before charging individuals, and overly aggressive probes could harm innocent beneficiaries who rely on these programs.
For ordinary Californians, the debate over Califraudia is more than political theater. Fraud investigations can slow down benefit processing or make needy applicants face extra scrutiny. Yet the billions already lost or misused have real consequences too, less money for healthcare, education, and housing.
As new audits and possible federal probes unfold, the truth about the scale of California’s fraud problem will depend on hard evidence rather than campaign slogans. Whether Hilton’s claims hold up or not, the controversy has forced both state and federal leaders to confront a tough balancing act: strengthening oversight while maintaining fair access to programs millions depend on.
Sources:
Washington Examiner, Califraudia Report Puts State Fraud, Waste, and Abuse Losses at $250 Billion
California State Auditor, 2025-601 State High-Risk Audit Program
Government Accountability Office, Reports and Assessments on Unemployment Insurance Fraud and State-Level Vulnerabilities
Congressional Record, H.R. 1156, 119th Congress, Pandemic Unemployment Fraud Enforcement Act
Trump White House, Fact Sheet: President Donald J. Trump Establishes New Department of Justice Division to Combat Federal and State-Level Fraud
NBC News, DOJ Sends More Federal Prosecutors to Minnesota to Assist in Fraud Investigations