Federal Probe Intensifies Into California’s Homelessness Spending

CALIFORNIA — California’s homelessness crisis—already the largest in the nation—has collided with a growing federal investigation into how the state managed billions of dollars intended to address the emergency. Federal auditors and prosecutors say the state’s homelessness programs were left vulnerable to fraud, waste, and abuse during a period when spending surged to unprecedented levels.

Homeless encampment in Lancaster, California.

A Crisis of Confidence in California’s Homelessness System

A federal audit released by the U.S. Department of Housing and Urban Development’s Office of Inspector General concluded that California’s Department of Housing and Community Development (HCD) operated with “disorganized” and “chaotic” anti‑fraud policies, failing to protect hundreds of millions in federal homelessness funds distributed during the COVID‑19 pandemic.^{1 2}

The audit did not identify specific new fraud cases within HCD, but it warned that the state’s systems were so weak that misuse of funds could easily go undetected.

“Fraud poses a significant risk to the integrity of federal programs and erodes public trust in government,” HUD Inspector General Rae Oliver Davis said in a statement.¹

California has spent $24 billion in the last five years on homelessness, and no one can account for where that money has really gone.

Billions in Federal Aid, Minimal Safeguards

During the pandemic, the federal government injected $4 billion into the Emergency Solutions Grant program to stabilize people experiencing homelessness. California received $319.5 million, a 2,505% increase over its typical annual allocation.^{1 2}

But according to federal auditors:

• California failed to prioritize fraud prevention in its homelessness programs ¹

• The state lacked adequate policies to detect or respond to fraud ¹

• Oversight systems were so weak that the state received HUD’s lowest possible rating for fraud‑risk management ^{1 2}

The audit concluded that the state “failed to properly protect” the funds from potential misuse.¹

HCD responded that it is implementing the federal recommendations and strengthening its fraud‑prevention framework, saying it is committed to “a systematic and comprehensive approach” to risk management.¹

The scrutiny comes as California continues to struggle with homelessness despite massive spending.

Federal Prosecutors: “Tip of the Iceberg”

While the HUD audit focused on structural vulnerabilities, federal prosecutors in California have already begun filing criminal charges in cases involving alleged fraud tied to homelessness programs.

According to First Assistant U.S. Attorney Bill Essayli, the federal government has launched a statewide task force targeting corruption in homeless‑services spending. The task force has already brought charges against individuals accused of using real‑estate projects to siphon off millions intended for homeless housing and services.³

https://www.theepochtimes.com/cai/california-lost-track-of-24-billion-in-homeless-spending-state-audit-reports-josh-hoover-5628216

Essayli said the early cases represent only the “tip of the iceberg”, and more charges are expected soon.³

“California has spent $24 billion in the last five years on homelessness, and no one can account for where that money has really gone,” Essayli said in a televised interview.³

Political Fallout: Federal–State Tensions Escalate

The investigation has become a flashpoint between the Trump administration and California’s leadership.

President Donald Trump announced publicly that a “Fraud Investigation of California has begun,” though he did not specify which agencies or programs were under review.^{4 5}

Federal officials have also frozen $10 billion in child‑care and social‑services funding to California and other states over concerns of “extensive and systemic fraud” in safety‑net programs, citing parallels to the Minnesota daycare scandal.⁶

California Governor Gavin Newsome

California Governor Gavin Newsom has pushed back aggressively, calling the accusations politically motivated and highlighting that his administration has blocked more than $125 billion in fraud across state programs since he took office.^{4 3}

A System Under Strain

The scrutiny comes as California continues to struggle with homelessness despite massive spending:

• The state has invested tens of billions in homelessness programs over the past decade.

• Homelessness has continued to rise, with visible encampments in major cities and rural regions alike.

• Local governments have complained of inconsistent state oversight and unclear reporting requirements.

The federal audit and ongoing investigations have amplified long‑standing concerns about whether California’s homelessness spending is producing measurable results—or whether the system has become too large, fragmented, and opaque to manage effectively.

What Comes Next

Federal investigators have signaled that more audits, subpoenas, and criminal charges may be forthcoming. The HUD Inspector General has recommended that California overhaul its fraud‑prevention systems before receiving future federal homelessness funds.

Meanwhile, the U.S. Attorney’s Office says it will continue pursuing cases involving:

• Fraudulent real‑estate schemes targeting homeless‑services grants

• Misuse of federal homelessness funds

• Corruption within state or local agencies administering homelessness programs

With billions of dollars at stake and public frustration mounting, the investigation is poised to reshape California’s homelessness policy landscape—and potentially expose deeper systemic failures.

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References

¹Audit: California risked millions in homelessness funds due to poor anti-fraud protections. https://www.newsbreak.com/calmatters-512886/3552595874409-audit-california-risked-millions-in-homelessness-funds-due-to-poor-anti-fraud-protections

²Audit: California risked millions in homelessness funds due to poor anti-fraud protections | LAist. https://laist.com/news/housing-homelessness/audit-california-risked-millions-in-homelessness-funds-due-to-poor-anti-fraud-protections

³Federal prosecutor calls Newsom 'king of fraud' as Trump launches California corruption probe. https://www.foxnews.com/media/federal-prosecutor-calls-newsom-king-fraud-trump-launches-california-corruption-probe

⁴Newsom responds after Trump says California is under investigation for fraud. https://abc7.com/post/trump-says-california-is-fraud-investigation-newsom-responds/18362682/

⁵Trump says fraud investigation of California has begun, mocks California governor Gavin Newsom. https://www.livemint.com/news/us-news/trump-says-fraud-investigation-of-california-has-begun-mocks-california-governor-gavin-newsom-11767714048317.html

⁶Trump lists his demands in $10B California childcare fraud probe. https://www.aol.com/articles/trump-lists-demands-10b-california-215507964.html

⁷Audit: California put millions of homelessness dollars at risk of fraud - CalMatters. https://calmatters.org/housing/homelessness/2024/08/hud-hcd-audit/