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California Commentary

Blue states have a fraud problem

By Jon Coupal

There is a great deal of media attention over the state of Minnesota's $9 billion (minimum) fraud problem. If this were a contest, California would say, "hold my beer."

While , the level of criminal fraud in Minnesota pales in comparison to the level of significant taxpayer rip offs here in California. And by fraud, we mean actual criminal activity over and above the baseline level of waste for which California is already famous.

Taxpayer advocates have urged for decades that the state should take more seriously its fiduciary obligation to prevent systemic fraud and other criminal activity that drains public funds. But the reaction by our elected leadership, with a few exceptions, has consistently been too little too late.

For example, as news of the scale of California's unemployment fraud began to break in 2021, I collaborated with a nationally recognized fraud expert, Haywood Talcove, to expose the obvious theft occurring against the public treasury. Talcove is the chief executive officer of LexisNexis Risk Solutions and has testified before Congress on fraud prevention.

The column that we jointly authored in February of 2021 warned that, "Transnational organized criminal groups from China and Africa have made off with billions of dollars - used for child trafficking, drugs and terrorism - while millions of deserving taxpayers have been struggling just to stay afloat."

Talcove's recommendation was to adopt a relatively inexpensive eligibility verification program that could be implemented quickly. But California allowed fraud to continue unabated for years.

The failure to adopt eligibility verification also occurred in California's Community College system. The systemic fraud here is the vast numbers of "bots" enrolled in California's community college classes, and the apparent ease in obtaining financial aid even though they are fake students.

Again, I co-authored a column with an expert in the fake enrollment scandal, Kim Rich, a professor of criminal justice at Pierce College in Woodland Hills, part of the Los Angeles Community College District.

For months, her complaints about the number of non-existent students enrolled in her classes went unheeded. And the problem continues to this day. In 2024 and early 2025, roughly a third of all applications to California community colleges were flagged as likely fraudulent.

Although well-run, fiscally conservative states are not immune from being targeted by sophisticated criminal organizations, these operations will invariably choose the soft targets - those states which are either slow to respond, if they respond at all, to obvious attempts at fraudulent attacks. One searches mostly in vain for stories on college enrollment fraud in states like Texas and Florida which quickly adopted AI assisted defenses against fraud.

A Wall Street Journal editorial published the day after Christmas, "A Tale of Two Medicaid States: Minnesota Fraud vs. Indiana Reform," illustrates the differing responses to fraud between "the Land of a Thousand Frauds" and the state of Indiana. In Minnesota, the Assistant U.S. Attorney Joe Thompson was quoted as saying, "When I look at the claims data and the providers, I see more red flags than I see legitimate providers. What we see in Minnesota is not a handful of bad actors committing crimes. It's a staggering industrial-scale fraud."

But Minnesota Gov. Tim Walz claims that Medicaid fraud isn't large or pervasive and has asserted more excuses than John Belushi did in the "Blues Brothers." Walz blames the federal government's COVID response, sensationalized estimates of fraud, political weaponization, Donald Trump, and white supremacy.

In contrast, as Minnesota's Medicaid program collects more federal fraud indictments than a magnet in a nail factory, Indiana's Medicaid program is quietly gaining national attention as a counterexample for its thoughtful approach addressing eligibility and waste.

The difference is not that red states don't have problems, or even scandals. It's when they do, they value competence over excuses.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

Contributions to PP13 are not tax deductible.

Paid for by Protect Prop. 13, a Project of the Howard Jarvis Taxpayers Association

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