New State Report Finds Minnesota Agencies Ignored Fraud Warnings for Decades

(KNSI) — A new 56-page state report reveals Minnesota agencies ignored repeated warnings about fraud vulnerabilities for nearly fifty years, and taxpayers paid the price.

Minnesota’s Director of Program Integrity, Tim O’Malley, conducted an independent review and found that the state has been losing massive amounts of taxpayer money to fraud — not just recently, but for decades — largely because agencies prioritized paying benefits over ensuring those payments were legitimate.

O’Malley’s report includes audit findings that flagged the same internal control failures at the Department of Human Services, the Department of Health, and the Department of Education dating back to 1977. In many cases, agencies promised corrective action, but many findings were marked “prior finding not resolved” or “prior finding partially resolved,” meaning the same problems surfaced audit cycle after audit cycle without being corrected.

O’Malley did not mince words, writing, “Planning without execution is destined to fail.”

Former DHS leadership apparently told employees to operate with a “70% compassion, 30% compliance” mindset. O’Malley calls that approach “misguided,” saying it created an opening for fraud. A 2023 DHS presentation encouraged a 60/40 version of the same approach. O’Malley argues compassion is a worthy virtue, but it should not influence fraud prevention decisions.

There has also been a dramatic increase in fraud reporting, with the DHS tip line receiving over 7,000 tips in 2025 — email tips up 215%, voicemail tips up 143%, and web reporting tips up 134%. But the system is overwhelmed. It’s taking weeks just to enter tips manually, and in some cases, more than a year for a tip to reach law enforcement.

The report also takes direct aim at legislative interference, citing a 2021 example in which a bill was introduced to forgive more than $571,000 in fraudulent overpayments to a daycare center that was already disqualified from the Child Care Assistance Program for billing fraud spanning ten years. The bill did not become law, but the report uses it as an example of the kind of political pressure that undermines enforcement.

O’Malley’s roadmap proposes nine pillars of reform built around a quote, “unified and actionable framework for re-engineering the state’s approach to better prevent, detect and respond to fraud across all executive agencies.” The sweeping changes include tougher provider screening, an independent oversight monitor, mandatory fraud training for all state employees, and real consequences for agencies that don’t improve. It also calls for every new piece of legislation that creates or modifies a program to include dedicated fraud prevention funding.

The report concludes with a sharp message: the fraud vulnerabilities are well documented and well understood. What has been missing, it says, is the will to act.

Interim DHS Commissioner Shireen Gandhi was officially appointed as the permanent commissioner on Monday. While some lawmakers praised Governor Walz for filling the position — calling it long overdue — others say her promotion sends the wrong message. They point out that during the last 13 months of her oversight, agency employees fabricated and backdated documents to mislead auditors investigating the department’s use of taxpayer dollars, and say that at a time when Minnesotans are demanding real accountability, the appointment raises serious questions.

___