Audit finds widespread problems in DHS oversight of behavioral health grants

Minnesota is failing to properly manage and safeguard behavioral health grants, according to a new audit.

It was a familiar finding.

The state Office of the Legislative Auditor has long warned of weak oversight and poor financial controls in various social services programs. Now, with a national spotlight on investigators’ growing tally of fraud in Minnesota, auditors found another area where taxpayer dollars are not being properly managed.

But, in this review, they encountered something that Legislative Auditor Judy Randall said was “frankly unacceptable,” and that she had not previously seen in her more than 27 years doing the work.

Randall told lawmakers at a Jan. 6 meeting of the Legislative Audit Commission that there were systemic issues where staff failed to do proper documentation and, when auditors sought information, they created documents and backdated them to look like they had been done earlier.

While that isn’t necessarily a violation of state law, Randall said it undermines audit integrity and their goal of discovering what needs to improve in a program.

Despite some unreliable documentation, auditors conducted a broad assessment of how the state is handling money that is supposed to help people with mental health and substance use disorders. They looked at a sample of behavioral health grant activity between July 2022 and December 2024. During that timeframe, behavioral health grant expenses totaled more than $425 million.

Republican Rep. Duane Quam lamented the human toll as state officials wrapped up an hourslong meeting on the audit, where legislators expressed shock at many of the findings.

“There are tragedies happening when we don’t effectively deliver these services and supports. There are faces. There are people impacted. It’s not just dollars,” Quam said.

These grants are important as communities statewide experience rising mental health challenges and the opioid epidemic persists, temporary DHS Commissioner Shireen Gandhi said.

“Strong internal controls are essential to protect taxpayer funds and make sure the money is used as desired,” she said, and outlined numerous steps they are taking to address findings in the audit.

Gandhi said she was shocked by the finding that staff backdated documents and said DHS is doing a “full and thorough” investigation. She said action could be taken against staffers.

Gandhi said repeated findings of problems “just means we need to dig harder and do more,” and said, along with more training, they need to hardwire in controls to ensure people don’t make mistakes.

Some internal control issues are inevitable at the massive department, which administers so many high-dollar programs, Randall said in an interview. But in the past decade she said she has seen issues rachet up at that state agency and it has been “super frustrating” when recommendations from her office, which may have helped prevent fraud, go unheeded.

“One thing I always come back to when I think about all of the issues we’ve had in the last couple of years is what a difference unannounced on-site monitoring would have made,” she said.

The Office of the Legislative Auditor has previously delved into several of the programs that are now in the spotlight.

The state’s Child Care Assistance Program in particular has been at the center of a national furor after influencer Nick Shirley posted a viral video in which he went to various day cares and attempted to see the children there but was not able to enter the facilities. He alleged large-scale fraud in the program. Federal authorities quickly responded, saying they are freezing child care payments to the state.

In 2019, a legislative auditor report found continued issues with the administration of the program. Among their findings: The state and counties did not sufficiently verify recipient eligibility, and the state had poor processes to check if providers were doing the services they billed for and did not have sufficient controls for licensing providers.

Federal prosecutors are looking into fraud allegations in 14 Medicaid-funded programs. The state has also flagged the programs as high-risk and instituted a third-party pre-payment review to try to catch billing issues.

The Office of the Legislative Auditor has reviewed several of those high-risk programs over the years.

It’s not just human services programs where the OLA has found oversight problems.

In February, Randall’s office plans to release an update on a review it has been conducting to check whether some of their past recommendations were implemented by various agencies and other entities.