Gov. Gavin Newsom’s pet volunteer project — a program that brought tears to his eyes in March — has been flagged by federal auditors as having weak oversight of millions of dollars in grant money.

A federal audit found ineffective oversight at California Volunteers and questioned $10.8 million in a nonprofit’s grant costs, raising accountability questions for Newsom and Josh Fryday, the governor’s “Chief Service Officer” who unsuccessfully ran for lieutenant governor this year. 

The report — commissioned by the AmeriCorps Office of Inspector General — found California Volunteers and three of seven organizations examined failed to comply with federal grant requirements. Auditors recommended recovering nearly $4.8 million in federal funding from CivicWell and disallowing another $6 million in matching contributions.

“Inadequate monitoring creates significant risk that federal funds are misused, wasted, or subject to fraud without detection,” the report states. “California Volunteers cannot rely on subrecipient financial reports if underlying records and supporting documentation are inadequate.”

Newsom, who is currently under federal investigation along with his wife, has made expanding public service programs a signature initiative of his administration, committing hundreds of millions of dollars to California Volunteers.

Fryday, whom Newsom appointed chief service officer in 2019, oversees the Governor’s Office of Service and Community Engagement, which houses the agency.

The audit report’s findings challenge the track record Newsom highlighted when endorsing Fryday in the spring, a couple months before he finished third in the primary election.

“Seven years ago, I asked Josh Fryday to serve in my administration, and he’s exceeded every expectation,” Newsom said in the endorsement announcement.

Auditors said inadequate records prevented them from verifying millions of dollars in CivicWell’s claimed expenses. The Sacramento Bee reported the audit on Thursday.

California Volunteers spokesperson Cristina Valdivia told the Bee the agency disputes the questioned costs, saying they “stem from reconciliation challenges with a former subrecipient rather than unallowable expenses.”

As part of Newsom’s “California Comeback Plan,” California Volunteers received a $400 million investment in service to expand and create new programs. Those investments extend beyond the grants examined in the audit.

The Legislative Analyst’s Office reported that the agency received $160 million in the 2022-23 fiscal year, and Newsom proposed $154 million for the following year, including a substantial increase in state general fund support. 

On Wednesday, Newsom and Fryday joined First Partner Jennifer Siebel Newsom at a ceremony welcoming more than 10,000 California Service Corps members. The governor’s office said more than 50,000 people have participated since 2019, contributing nearly 26 million service hours.

Auditors examined activities and financial reports covering January 2022 through April 2024, and they found California Volunteers failed to adequately evaluate recipients’ financial systems before awarding grants and did not conduct periodic assessments to identify organizations requiring closer scrutiny.

The agency also failed to detect missing documentation, improper accounting and weaknesses in financial controls at grant recipients, the report said.

Auditors said CivicWell’s accounting records did not adequately separate federal spending from matching contributions, preventing verification that expenses were assigned correctly and were not counted twice.

California Volunteers could face liability for questioned costs that cannot be recovered from recipients.

Auditors called for stronger financial reviews, staff training, documented corrective actions and suspension of payments to high-risk recipients.