Walz administration faces more scrutiny as FBI investigates fraud in another state program

Minnesota Gov. Tim Walz is facing a growing political headache as new allegations of fraud in a state program revive questions about his administration’s oversight of taxpayer funds.

Federal investigators last week searched five housing service provider sites as they investigated what they called a “massive scheme” to defraud Minnesota’s Housing Stabilization Services program, which uses Medicaid money to help find and maintain housing for older adults and people with disabilities.

The raids came just seven months after the FBI searched state autism treatment centers in a separate investigation into Medicaid fraud, and more than three years after federal investigators raided the offices of Feeding Our Future, the St. Anthony nonprofit that was at the center of one of the country’s largest pandemic-era fraud schemes.

The high-profile cases have become ammunition for Republicans who say Walz and his administration haven’t done enough to prevent theft of public funds.

Republicans have already signaled they plan to make it a 2026 campaign issue, forming a political action committee this week called “Fight the Fraud.” They’ve pointed to repeated cases of financial mismanagement at state agencies during Walz’s tenure, saying the governor has shown little willingness to hold his agencies accountable for shoddy oversight.

“The culture of fraud is, unfortunately, endemic, and we believe it is necessary to seek federal intervention,” read a letter signed Wednesday by state GOP House Speaker Lisa Demuth and Reps. Kristin Robbins, Jeff Backer and Joe Schomacker. They wrote to the U.S. Department of Health and Human Services asking it to audit the state Department of Human Services (DHS), which oversees the housing services and autism treatment programs.

In an interview, Robbins gave the DHS credit for becoming more responsive to fraud complaints since federal authorities started investigating state programs. But the Maple Grove Republican questioned why the state agency didn’t catch some of the cases sooner.

Temporary DHS Commissioner Shireen Gandhi said in a statement Wednesday that the DHS “shared data on Housing Stabilization Services providers that ultimately enabled the federal action taken last week against fraudsters.”

“As fraud schemes have evolved and become more sophisticated, we partnered with legislators to add new tools and tighten up program requirements,” Gandhi added.

She said she welcomes any federal audits to help improve program integrity.

Robbins, who’s considering running for governor, said she thinks the fraud cases will be a liability for Walz if he runs for a third term.

She blasted Walz on the issue, saying his administration has “failed the taxpayers” and opposed legislation this year that would have created an Office of Inspector General to investigate fraud.

The governor’s office said Walz has “repeatedly indicated” he’s open to creating an Office of Inspector General. But even some Democrats say his administration was ambivalent about the proposal.

Sen. Heather Gustafson, a White Bear Lake Democrat who spearheaded the OIG proposal, said she encountered pushback from the administration.

“We saw people resist the idea of a statewide OIG in, I will just say top leadership, and that would include heads of agencies and the governor’s office,” Gustafson said. “And then we would get mixed messages from them.”

Walz said he’d sign the bill into law at one point, Gustafson noted, and later said he had reservations. The bill ultimately passed the state Senate but not the House.

“The problem is, everybody says they want to do something about fraud, but what they really want to do is make incremental and smaller changes within the agencies. And while I think all ideas that fight fraud are good, we need something more substantial than just keeping all of these investigations internal with the agencies,” Gustafson said.

“That’s exactly what we’re seeing play out in this case,” the spokesperson said, referring to the federal investigation of housing service providers. “If you commit fraud in Minnesota, you will be caught and you will go to prison.”

After the December raid of autism treatment centers, Walz condemned public program fraud as “unacceptable” and a crime against the vulnerable. He created a state fraud investigation unit through executive order and proposed several measures to prevent theft of public funds, some of which passed in the Legislature this year.

In the latest investigation of housing service providers, Gandhi said the federal search warrants were the result of “critical partnerships” with the state DHS, Bureau of Criminal Apprehension and the Attorney General’s Office.

Walz intends to propose more fraud-prevention measures next year, according to the governor’s office, including a proposal to use artificial intelligence to detect fraud markers.

But after years of scrutiny, it’s unclear whether Walz and his administration can shake the criticism that they’re soft on the issue.

Prosecutors have said about $300 million was stolen in the Feeding Our Future case. It isn’t yet clear to what extent fraud has crept into the housing stabilization or autism treatment programs, but both have experienced alarming growth in recent years.

The state estimated the housing program would cost about $2.6 million annually when it was launched in 2020. By 2024, it paid out more than $104 million in claims, according to the federal search warrant affidavit. Payments to autism providers also spiked from $6 million in 2018 to $234 million in 2024.

David Sturrock, a political science professor at Southwest Minnesota State University, said he isn’t convinced Walz will pay a political price for the fraud cases during his tenure. It’s a complicated issue for many voters to understand, he said, and connecting it to Walz is difficult.

“One thing in Walz’s favor is timing. The longer an awkward, ugly, embarrassing story is out there, the older it gets,” Sturrock said. “People forget, and an officeholder or an administration can mitigate the political damage because of that.”

January 2022: Feeding Our Future investigation goes public as FBI and other law enforcement personnel search more than a dozen locations.

December: FBI raids two Minnesota autism centers as part of investigation that revealed “substantial evidence” of millions of dollars in fraudulent Medicaid claims.

July: Federal investigators search locations tied to five Minnesota businesses as part of a probe into what they called a “massive scheme” to defraud Housing Stabilization Services program.