The Governor’s budget plan proposes to eliminate DMH and create a new Department of State Hospitals (DSH), shifting the remaining community mental health programs to various departments. This new structure would allow the administration to better focus on the fiscal and programmatic issues unique to state hospitals. In 2008-09, the Office of State Audits and Evaluations (OSAE) conducted an audit which outlined the problems state hospitals experienced, concluding that staffing did not adequately reflect hospital workload, funding was not sufficient for annual operating expenditures, and that state hospitals were not efficiently using their staff. Similarly in a 2011 self-audit, DMH found that many of the same problems from the 2008 audit remained. We concur with both audit teams’ assessments. In this brief report, therefore, we recommend an audit be conducted that looks at a number of issues, including state hospital budgeting practices, the fiscal controls being put in place, and the level of vacancies and their impact on the state budget and on hospital performance. We recommend this added oversight with respect to state hospitals should take place regardless of the Legislature’s decision on the creation of a new DSH.