California controller race heats up as candidates clash over fraud, taxpayer dollars

SAN FRANCISCO (KGO) -- An office that typically flies under the radar could be home to one of California's more competitive statewide races this November.

Republican Herb Morgan is challenging Democratic State Controller Malia Cohen, who is seeking a second term overseeing an office responsible for tracking and disbursing state funds, auditing certain government spending and managing billions of dollars in unclaimed property.

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An internal poll commissioned by Morgan's campaign shows him within single digits of Cohen. The results should be viewed with caution because the survey was conducted for Morgan's campaign, but Republicans see the race as a potential opportunity to break a two-decade drought in statewide elections.

No Republican has won statewide office in California since Arnold Schwarzenegger was reelected governor in 2006.

In separate interviews with ABC7 Eyewitness News this week, Morgan and Cohen laid out competing cases for who should be watching California's checkbook at a time when voters are increasingly skeptical of how state government handles their money.

Morgan: California has a 'fraud problem'

Morgan, who spent four decades in finance, is campaigning on the argument that California lacks adequate financial controls to prevent taxpayer dollars from being wasted or stolen.

"We don't have a spending problem. We have a fraud problem," Morgan said.

Morgan argues the Controller's Office should make greater use of its authority to scrutinize spending before and after state money is disbursed. He said he would prioritize audits of Health and Human Services programs and nongovernmental organizations receiving state funds.

For nonprofits and other organizations receiving public money, Morgan wants funding more closely tied to measurable results rather than relying primarily on organizations to attest that funds were properly used.

"Did you use it properly? Well, who's going to say no?" he said. "That's like asking your child, 'Did you get an A on the test?' And they got to grade their own test."

Morgan also criticized the state's process for following up on deficiencies identified through audits. He told ABC7 that a public Controller's Office report tracking deficiencies has not been updated since 2013.

Asked about that criticism, Cohen said she did not know what source Morgan was citing and pointed instead to improvements her office has made in the state's annual financial reporting.

Cohen defends her record, says technology can prevent fraud

Cohen, who was elected Controller in 2022 after previously serving on the San Francisco Board of Supervisors and State Board of Equalization, says her office has made progress clearing longstanding backlogs.

She pointed in particular to California's Annual Comprehensive Financial Report, saying her administration completed four reporting efforts in two years and has brought the state back toward producing the reports on schedule.

"We have cleared backlogs that have existed, backlogs in our unclaimed property program, backlogs that have existed in our financial reporting," Cohen said.

She also said her office is developing a pilot program using artificial intelligence to identify potential irregularities before money is improperly paid out-an idea Morgan is also supportive of.

"Being a watchdog isn't trying to claw money back once it's out," Cohen said. "It's being aggressive on the forefront and stopping that fraud from even occurring."

She pointed to a charter school fraud case as an example of the state identifying misuse of public money. Cohen said her office subsequently convened a working group that helped develop stronger financial safeguards for schools.

"We prosecuted them. They went to jail, and we clawed back that money," Cohen said.

But Cohen pushed back against the broader argument that fraud is pervasive throughout California government.

"I don't believe that it is as rampant and pervasive as the Trump administration is putting out," Cohen said.

Different visions for transparency

Both candidates say Californians should have easier access to information showing where their tax dollars go, but Morgan is proposing a particularly expansive overhaul, but one he says will not be expensive.

Morgan wants state spending published at the transaction level on a daily basis, with artificial intelligence analyzing the data and flagging unusual transactions for human review.

"Rather than us sifting through haystacks every day, trying to find bad things, we can use AI to reach into the haystack, pull the needle, give it to us," Morgan said.

Cohen also says greater transparency is a priority for a second term. She wants state financial information to be searchable and easier for taxpayers to understand without having to comb through government audits.

"I want Californians to be able to know where every dollar and cent is going," Cohen said.

A debate over experience and one-party control

Morgan is also making a political argument for his candidacy: with Democrats controlling the governor's office, Legislature and every statewide constitutional office, he says electing a Republican Controller would add another check on state government.

"I've got one party that controls where we spend money," Morgan said. "Wouldn't it be great to have just a little balance on the comptroller?"

Cohen argues the job should transcend party politics and says her experience in public finance and government makes her better equipped for the office.

"You really want someone that's going to be solid and be able to call a ball and be able to call a foul without fear of repercussion," Cohen said.

She also disputes Morgan's characterization of the Controller as essentially a financial rather than policymaking position. The Controller sits on dozens of state boards and commissions, including bodies overseeing public pensions, state lands and financing, giving the officeholder a role in policy decisions beyond simply monitoring the state's checkbook.

Billions in forgotten money

The candidates are also emphasizing a lesser-known responsibility of the office: returning unclaimed property.

California currently holds roughly $15.5 billion in unclaimed assets, money that can come from dormant bank accounts, insurance proceeds and other property businesses have been unable to return to their owners.

Cohen said her administration has returned approximately $2 billion to Californians and has worked to reduce a backlog in the program.

Morgan argues the state should be even more aggressive in identifying owners and returning their property.

Despite their disagreements, both candidates are tapping into a broader concern among California voters.

Polling from the Public Policy Institute of California has found more than nine in 10 Californians believe state government wastes at least some of the money taxpayers provide.

For an office that rarely commands much attention, that dissatisfaction could give voters a reason to take a closer look at who controls California's checkbook this November.