Preventing Fraud Against Government Agencies

Since 2023, the DFL-led legislature has made dozens of policy changes to improve oversight overtaxpayer-funded programs and prevent fraud against government.

RECAP: 2023/2024 anti-fraud accomplishments

  • In 2023, the legislature appropriated $5 million for grants administration oversight and to fund a study that will develop and implement a plan for an enterprise grants management system. Backstops have been put in place to prevent misuse of grant funding, including additional pre-award assessments of potential grantees, additional performance evaluations of grantees, and additional review of grant and business subsidy recipients.
  • In 2024, the legislature included nearly 10 pages of new protections and transparency on grants and established a new team at the Department of Administration specifically tasked with carrying out these new accountability efforts. Almost every Republican voted against these ideas; DFLers made it happen.
  • Thanks to 2023 and 2024 efforts, the current oversight on state agencies and programs is safer than any passed in state history, and *all future budgets* will carry those same protections.

PASSED: Anti-fraud measures passed in 2025 by topic

State and Local Government

The State and Local Government omnibus included a number of provisions aimed at fighting fraud against our state government. These provisions allow for expanded data sharing across agencies and with law enforcement when there is evidence of fraud if that data would promote the protection of state resources. Agencies now have the authority to temporarily withhold payments to program participants when there is sufficient evidence of fraudulent actions. This legislation also strengthens reporting requirements for agencies administering grant funding, strengthens whistleblower protections for state employees, increases transparency and expands grants management training for state employees.

The State and Local Government bill also included additional $4 million in the next biennium for the Attorney General’s Office to fight fraud. The Office of the Secretary of State also received an additional $1 million in the next biennium, as well as funding from a new penalty for business filings to fund additional business filing fraud mitigation under the Business Filing Fraud and Deceptive Mailings Act.

E12 Education

$2 million each year is appropriated in the E12 bill to provide the Department of Education (MDE) with additional staff in the MDE Office of the Inspector General to increase fraud detection and prevention.

Jobs and Economic Development

To strengthen oversight and better track the efficacy of grants administered by DEED, the Jobs Committee attached new reporting requirements to grants awarded to named organizations/programs. These measures are in addition to other oversight and anti-fraud provisions passed in 2023/24.

Under this new law, DEED will produce a report card that will provide “…a uniform outcome measurement and reporting system for adult workforce-related programs…” The specific measures to be reported to the appropriate Legislative Committees may be found in subd. 3 of MN Statute 116L.98.

Judiciary

The Judiciary Omnibus bill established a Financial Crimes and Fraud Section under the BCA, transferring it from the Department of Commerce. This Section must investigate all suspected fraudulent activity that equals more than $100,000. Annual reporting on the work of the section is also required.

Taxes

Current law allows taxpayers to assign a refund in advance of claiming the K-12 Education Credit to help pay for services, such as tutoring, that would be considered eligible expenses to claim the tax credit. Less than 1% of taxpayers choose this assignment option, but it recently drew attention as a few allegedly illegitimate tutoring services may have used “assignability” to defraud mostly immigrant families seeking educational assistance for their children. This was a case of bad actors taking advantage of a well-intended tax policy for dishonest purposes. The tax bill language will ensure this cannot happen again, and that K-12 education tax credit dollars are maintained for families who need it. (HF 9)

Health & Human Services

The Human Services policy bill contains sweeping illegal enumeration language that adds criminal penalties for providers suspected of kickback schemes and updates substance use disorder billing requirements to stop businesses from duplicative billing practices (HF 2115).

The Human Services budget bill establishes a mortarium on new autism center agencies, effective July 1, 2025. The bill also adds provisional licensing standards and strengthens professional qualifications for autism providers enrolled in Medicaid to ensure children can access services in a safe environment with properly trained staff. Housing stabilization services providers also have new standards to enroll as a Medicaid provider. Finally, a voluntary certification process for recovery residences provides new oversight authority to the state that will protect people in recovery (HF 3 Special Session).

The Health and Human Services budget bill ensures the Department of Human Services Office of Inspector General (DHS-OIG) has expanded authority and personnel to address the increasingly complex sophistication of business operations that take advantage of Medicaid programs. Updating background studies statutes will allow DHS-OIG greater authority to disqualify people under active investigation or connected to program integrity violations. The Department of Children, Youth, and Families will also have more resources to maintain program integrity in the Child Care Assistance Program (HF 2 – Special Session).

Grants:

On a biennial basis, MDH, DHS, and DCYF must report information on grants administered by each agency to certain members of the legislature and certain nonpartisan legislative offices, effective January 15, 2026, and each odd-numbered year thereafter. This new responsibility for agencies working in Health and Human Services will ensure there is legislative oversight to how funding is distributed by nonprofits and analyze outcomes and successes of grant programs. Reporting data to nonpartisan staff will provide an independent analysis of expenditures, regardless of which party is in control.

Anti-Kickback:

Senate DFLers supported adding anti-kickback policies and criminal violations for Human Services programs into state law, these provisions apply to both Medicaid (Medical Assistance) and child care assistance programs (CCAP). By codifying anti- kickback provisions into state law, DHS’s Office of Inspector General will be able to take administrative actions related to kickbacks, including referring them for criminal prosecution.

Effective August 1, 2025, people who engage in illegal renumeration (anti-kickback) practices face the following penalties:

  • Imprisonment of not more than 20 years or a fine of not more than $100,000, or both, if the value of any money, discount, credit, waiver, rebate, good, service, employment, or other thing of value solicited, received, offered, or provided exceeds $35,000.
  • Imprisonment of not more than ten years or a fine of not more than $20,000, or both, if the value is more than $5,000 but not more than $35,000.
  • Imprisonment for not more than five years or a fine of not more than $10,000, or both, if the value is not more than $5,000.

Substance Use Disorder:

In 2023 and 2024, the legislature finally began the process of reforming Peer Recovery Services, Recovery Community Organizations, and temporary housing accommodations for people in recovery, formerly known as Sober Homes. DFLers enacted reform through establishing workforce and practice standards, requiring documentation, and subjecting programs to random billing audits.

Unfortunately, business operators in the SUD treatment industry continued to work around billing standards currently in law and coerced their clients into accepting living accommodations which only benefited the business. Along with adding anti- kickback provisions into statute, the Senate DFL strongly supported the following provisions to continue our work on improving an industry that was long overdue for reform:

New SUD billing codes and closing SUD billing loopholes

Six new billing codes are created for counseling, psychoeducation, and recovery support services. This will also replace the previous one-hour unit with a 15-minute unit. These changes will create transparency and accurately reflect services provided.

Clarifying the existing statute on billing practices will address instances of exploiting time-based codes to perform duplicate billing. New statutory authority will help the state stop this practice, decreasing instances of wasteful spending of taxpayer dollars (mid-point billing rule).

Recovery community organizations (RCOs)

A new law requires all RCOs to be certified by the Minnesota Alliance of Recovery Community Organizations to be eligible vendors of peer recovery support services. Existing RCOs have up to two years to obtain this certification.

Recovery Residence Reform (Formerly Sober Homes)

Building on changes enacted in 2023, the Senate DFL established a voluntary certification program for SUD providers offering temporary housing. The provision strengthens the existing statute passed in 2023 and adds stronger guidelines to protect people in recovery from coercive business practices. Changes include:

  • Changing the name from “sober home” to “recovery residence” in statutes.
  • Establishing residence standards, resident rights, and a working group.
  • Outlining the state’s authority to investigate concerns relating recovery residences.
  • Creating a voluntary certification program.
  • Require certification to enter into an agreement with DHS to receive payment for Housing Support services.

Child Care Assistance Program (CCAP):

The DFL legislature passed legislation in 2023 and 2024 that strengthened program integrity measures in the child care assistance program. The new agency the Department of Youth, Children, and Families will take over licensing and oversight for child care within its own Office of Inspector General beginning the summer of 2025. DFLers in 2025 established anti-kickback criminal penalties for CCAP providers and invested in resources to help provide oversight of CCAP.

Illegal renumeration (anti-kickback)

Effective August 1, 2025, it will be a crime when program applicants, participants, and providers offer, provide, solicit, or receive money or anything of value in exchange for obtaining or attempting to obtain child care assistance benefits or directing someone to enroll their children with a particular provider.

Statewide Electronic CCAP Attendance Tracking

The CCAP electronic attendance tracking system is an OLA recommendation from 2019. This new tool will be a real-time electronic sign-in system that provides an automated way to verify children’s actual attendance against provider billings and authorized care.

Medicaid (Medical Assistance):

Detecting Fraud, Waste, and Abuse

Clarifying the law and investing in personnel to manage oversight will have a return on investment, as the state will be able to prevent wasteful and fraudulent spending and recoup money back. Senate DFLers championed the following provisions:

  • Statutory changes will allow for the disclosure of information related to payment withholds on providers.
  • Clarifying the statute of limitations for recovery from surety bond companies will decrease the workload of legal staff because DHS-OIG will be able to avoid lengthy lawsuits and close cases faster.
  • Updates to statutes relating to Fraud Prevention Investigations (FPI) will better reflect modern business practices.
  • FTE requests to address DHS-wide program integrity needs. Positions include managing work for the limits on receiving public funds, investigators, support staff, and legal staff across the Program Integrity Oversight division to address the increasing number and sophistication of cases.
  • Investments to allow for the ability to contract with a medical review agent in pre-payment review of selected claims.

EIDBI MA Benefit (Autism Services)

In 2023, the Senate DFL appropriated money to study how the state can address program integrity issues in the MA EIDBI benefit. As a result of the study, the 2025 legislature had recommendations ready on how to move forward to ensure these services had proper oversight.

Senate DFLers established a provisional EIDBI (autism center) licensure process that will serve as a stopgap measure until the legislature approves robust licensing standards. This will ensure that providers complete a background check before enrollment in the MA billing program, will require EIDBI providers to follow existing licensing standards in 245A, and provide DHS authority to investigate maltreatment and classify agencies as “high-risk,” making them subject to more frequent revalidation visits.

  • Moratorium:
    • Beginning July 1, 2025, DHS must not enroll new EIDBI agencies. Existing agencies may enroll new locations.
  • Timeline:
    • Beginning January 1, 2026, DHS will issue provisional licenses to EIDBI agencies.
    • Current EIDBI agencies have until May 31, 2026, to apply for provisional licensure.
    • Beginning June 1, 2026, EIDBI agencies must not operate in Minnesota if they have not submitted an application for provisional licensure.
    • By December 31, 2026, DHS must deny or approve provisional licensure applications.
    • A provisional license is effective until comprehensive EIDBI agency licensing standards are in effect, unless DHS revokes it.
  • Development of Comprehensive EIDBI License:
    • By January 1, 2026, DHS must collaborate with the Early Intensive Developmental and Behavioral Advisory Council to develop comprehensive EIDBI licensing standards and a transition plan.
    • By January 1, 2027, DHS must propose standards and draft legislation to develop comprehensive EIDBI licensing standards and a plan to transition EIDBI agencies to the new licensure.

Housing Stabilization Services & Recuperative Care (New MA Benefits)

The Senate DFL strengthened the requirements and qualifications that providers must meet in order to bill for this new Medical Assistance benefit. The new standards include the following:

  • Background studies on any individual with at least a 5% ownership stake, an operator, an employee, or a volunteer with direct contact with people receiving services.
  • Before DHS determines an agency is eligible for Medicaid reimbursement, the agency must be confirmed eligible by going through a pre-enrollment risk assessment by DHS.
  • An agency must show proof of surety bond coverage for each business location providing services.
  • Mandatory compliance training for providers regarding billing, documentation, and service delivery.
  • HSS service limits per recipient and prohibits concurrent services.

Strengthening the Department of Human Services’ Office of Inspector General:

Discretionary Temporary Licensing Moratorium

This provision grants DHS the authority to determine whether exceptional growth in applications for licensure under 245A or requests to add new services exceeds the determined need for service capacity. If DHS makes that determination, the agency can refuse to accept applications for licensure.

The determined need for service capacity can be analyzed regionally, by service type, or by other factors as determined by DHS. DHS may issue a temporary licensing moratorium for a period of up to 24 months. DHS must notify relevant Chairs at least 30 days before publishing a moratorium notice.

Background Studies

Updates to statutes will enable DHS to disqualify people under active investigation for fraud from working in programs serving children and vulnerable adults that have access to billing and receiving public funds. DHS must also disqualify an individual who is the subject of a background study from any position involving ownership, management, or control of a program or billing activities if a background study shows program integrity related violations. DHS must also give preeminent weight to program integrity when reviewing reconsideration requests.

Expanding authority in licensing and data sharing will authorize the sharing of investigative data across agencies

  • Statutory changes expand DHS’s authority to enact license suspensions beyond the license holder, such as a controlling individual, at the application stage, and provide authority to suspend licenses for reasons beyond criminal charges, such as for pending civil or criminal investigations or administrative actions related to fraud.
  • DHS may exchange information, including claims data, with state or federal agencies, professional boards, departments, or programs for the purpose of investigating or prosecuting a criminal, civil, or administrative proceeding related to suspected fraud or exclusion from any program administered by a state or federal agency.
  • DHS must act immediately to temporarily suspend a license issued if the license holder’s or controlling individual’s actions or failure to comply with applicable law or rule, or the actions of other individuals or conditions in the program, pose an imminent risk of harm to the health, safety, or rights of persons served by the program.

DID NOT PASS:

The Office of the Inspector General

A bipartisan proposal for a new Office of the Inspector General (SF 856) traveled through the Senate in 2025, making a total of nine committee stops before heading to the Senate floor, passing 60-7. The goal of the bill was to hold bad actors accountable and prevent misuse of taxpayer dollars, prevent waste and enhance transparency. While some agencies in our state government have their own Inspectors General, creating an independent office would better equip the state to catch fraud and build a culture of accountability and proactive oversight throughout the entire state government. The key responsibilities of the Office of the Inspector General would include conducting investigations into any entities that receive state dollars, public or private, if there is a reasonable suspicion of fraud. The Office would also ensure state agencies meet high ethical and financial standards. This office would save taxpayer dollars while strengthening public confidence in government by identifying misuse before it grows into a larger problem.

Detecting Fraud with Artificial Intelligence

The Senate DFL raised concerns about relying on Artificial Intelligence (AI) to detect fraudulent practices. Currently, there is little to no oversight on AI. These concerns were heightened when President Trump proposed a ten-year moratorium on states placing any guiderails on AI. Senate DFLers did not believe this provision should pass until the state can establish consumer protections regarding AI and enforce AI transparency and accountability laws.