An Associated Press review of state Water Resources Control Board records found old agencies that are not obligated to report water usage.
The report found nearly 4,000 companies, farms and agencies such as the Los Angeles Department of Water and Power, Southern California Edison and Pacific Gas and Electric use an unmonitored amount of free water.
Analysts blame century old California water laws.
The water rights system has relied on self-reported water use records that are full of unnoticed errors.
The AP found that some people with water rights would overstate their usage - to preserve their right to draw more water in the future.
Public works officials in Santa Barbara said the state is trying to address the problem highlighting by the drought.