State Auditor Julie Blaha: Let’s clear things up on Minnesota fraud

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It’s time to get our heads in the game about fraud.

Elected officials and the media are right to sound the alarm — but the conversation is in danger of veering off track.

There are good ideas on the table, but the public debate has gotten confusing partly because we’re using the same terms for very different things.

Let’s start with a shared understanding of how oversight in government works.

I think of it like a hockey game — with fewer lost teeth. We have referees, coaches and players, and each has a unique, essential role.

Internal auditors, agency inspectors general and consultants act more like coaches. They’re inside the organization helping implement best practices and fix problems identified by the refs. While they do have a level of independence, it’s different from that of a ref because they are employees of the organization they audit. Also, unlike a ref, their engagement is more focused on an individual entity. The difference in independence is made up for in nimbleness. The governor’s inspectors general proposal fits in this category.

Refs and coaches are both critical to a clean game — and they’ve dominated Minnesota’s recent fraud discussion. Should we have more refs? More coaches? Stricter penalties? Perhaps — but none of it matters unless we focus on the players.

Public employees, nonprofits and private contractors are the ones actually on the ice. Understanding who’s playing — and how the roster has changed — is key to preventing fraud.

During COVID-19, Minnesota’s lineup shifted dramatically. The state traditionally relied on public employees overseen by state agencies to deliver services. But when the pandemic hit, surging need and rapid disruption required turning to outside contractors to meet the crisis. It was like borrowing players from other leagues.

That’s where the trouble began. In Minnesota — and across the country — the most common issue in government audits was “subrecipient monitoring,” a technical term for overseeing outside contractors. It’s no coincidence that virtually all of Minnesota’s recent large-scale fraud cases were caused by private or nonprofit organizations, not public employees or program recipients.

Would the Feeding Our Future fraud have happened if pandemic nutrition programs had been run through school cafeterias? Would we be talking about fraud at autism centers if special education programs were fully funded in public schools?

When outsourcing is necessary, we need to build the infrastructure to manage it — technology, systems and enough qualified state employees to oversee vendors effectively.

At the local level, which is the focus of my office, the problem looks different. Many local governments are playing shorthanded and with old equipment. There’s a nationwide shortage of accountants, bookkeepers, clerks and auditors, leaving cities, counties and towns trying to manage complex finances with fewer people. Outdated technology only compounds the issue. That’s why local audit findings are more often about errors or omissions than intentional fraud.

In service of our duty to combat waste, fraud and abuse, we at the Office of the State Auditor are focused on helping local governments address these shortages. I supported a bill to expand pathways into the accounting profession and we’re now working with local officials and stakeholders to align oversight with the greatest risks. We’re also examining how to manage Minnesota’s unusually high number of local entities and encouraging lawmakers to streamline the rules imposed on local governments — to improve compliance without overwhelming staff.

Finally, where does the public fit in? You — the people who fund and rely on government — are the owners of the team. You’re right to expect vigilance in preventing fraud. But I hope you’ll also push us to look beyond refs and coaches and focus on the players — and the systems and rules they’re working under.