As the multi-billion-dollar Medicaid fraud scandal in Minnesota continues to develop, another much larger fraud scandal is potentially brewing in California. A recent report from the state’s independent auditor has revealed that upwards of $33 billion in federal and state taxpayer funds have been pilfered from the Golden State’s unemployment insurance system over the last six years due to lax oversight and inaction by Governor Gavin Newsom’s (D) administration.

As reported by California Policy Center President Will Swaim in National Review Friday, Newsom has yet to overhaul his state’s unemployment insurance system years after it was discovered that international criminal gangs from China and other U.S. adversaries had stolen most of an estimated $26 billion in taxpayer funds lost to fraud due to insufficient verification requirements.

The issue stems from the COVID pandemic, when Newsom, along with 21 other governors, accepted loans from the federal government to supplement their state’s unemployment insurance as virtually all storefront businesses were forced to shut down during the lockdowns. But in the subsequent years after the pandemic ended, Newsom has never bothered to repay the federal loan. As a result, the Federal Unemployment Tax Act (FUTA) requires the IRS to issue a payroll tax on California business owners to recoup the money. “Today, thanks to Newsom, some 4 million California employers now pay three times the standard rate, $126 per employee,” Swaim notes.

What makes the situation even more concerning to observers is the fact that much of the money intended for unemployed Americans has instead ended up in the pockets of criminals, largely due to the negligence of the Newsom administration. As Swaim detailed, in the years leading up to the pandemic, Newsom’s then-secretary of Labor Julie Su “ignored the state auditor’s warnings about vulnerabilities in the state’s unemployment benefits system, arguing that the tougher identity-verification standards the auditor recommended would disproportionately hurt black and brown Californians.”

In addition, the risk solutions firm LexisNexis offered to improve the security of the state’s unemployment claims system without rejecting legitimate claims. But Su and her staff reportedly discredited the firm, claiming no fraud was occurring. “When the fraud numbers began to spike in 2020 … Su and her staff called them ‘accidents,’” Swaim reports.

As a result, foreign cyber criminals, including the Chinese state-sponsored group Advanced Persistent Threat 41, were able to fraudulently purloin approximately $26 billion from California’s Employment Development Division (EDD).

“The staggering fraud committed against California’s EDD during the pandemic is alarming, but the real danger lies in what those stolen billions are now funding,” Paul Eckloff, a retired Secret Service special agent, told NRO. “Nation-states and transnational criminal groups are using this money to fuel illicit narcotics, human trafficking and activities that actively undermine our financial institutions and national security.”

“Even more alarming, these groups haven’t stopped — they’re continuing to target state programs across the country, promoting terror, crime, and undermining the rule of law,” Eckloff added.

The explosive revelations have gotten the full attention of the White House. On Thursday, Vice President J.D. Vance announced that a new assistant attorney general position was being created within the Department of Justice to coordinate the investigation and prosecution of fraud across the country. “We know that the fraud isn’t just happening in Minneapolis. It’s also happening in states like Ohio, it’s happening in states like California,” the vice president emphasized.

President Trump further underscored an impending reckoning for the Golden State’s burgeoning fraud scandal. “California, under Governor Gavin Newscum, is more corrupt than Minnesota, if that’s possible??? The Fraud Investigation of California has begun,” he posted on Truth Social Tuesday.