A Minnesota agency that handles about $200 million per year in grant money “did not comply with most requirements we tested,” a state watchdog found, and had inadequate safeguards to ensure money was properly spent.
The Office of Legislative Auditor released a new report citing 13 findings against Minnesota’s Behavioral Health Services (BHS), which hands out federal and state funds to help people with substance abuse and mental health disorders.
The report, presented to state lawmakers during a bipartisan meeting on Jan. 6, outlines problems such as overpaying grantees, failing to monitor recipients’ use of grant money, and allowing prior audit findings to remain unresolved.
Further, Legislative Auditor Judy Randall told lawmakers she was troubled to discover that employees were “creating or backdating” records during the audit, attempting to make up for deficiencies.
In her 27 years of working for the watchdog agency, Randall said, “I have never seen this before.” Multiple employees fabricated the records, she said, “So, ... we do believe it was a systemic effort.”
The report does not name those workers, nor does it recommend disciplinary action against them. Randall’s office chose to do a performance audit of BHS, which is not routine. It is a focused look at the agency’s operation.
The report comes at a time when Minnesota is facing increasing scrutiny over its fraud-plagued social programs, but thus far, fraud prosecutions have centered on programs outside of BHS.
Shireen Gandhi, temporary commissioner of the state welfare department that includes BHS, appended a written response to Randall’s report, saying, “We take the report seriously and accept responsibility for the findings identified in the report.”
The statement did not specifically address Randall’s concern about the backdated or newly created documents.
In an example of that issue, the report states that BHS provided records showing that staff visited a grant recipient three times to monitor compliance.
“However, the grant manager created the documentation in February 2025, which was after we started our audit,” the report said, for visits that “supposedly occurred in May 2024, October 2024, and January 2025.”
Although the grant manager said the visits happened but went undocumented at the time, “the grant manager could not provide any notes, email communication, or calendar schedules to show that these monitoring visits occurred,” the report said.
The report drew the attention of Rep. James Comer (R-Ky.), who highlighted part of the report at the House Oversight Committee’s Jan. 7 hearing that focused on problems in Minnesota’s government-benefit programs.
Comer highlighted a specific concern the report discloses. One grantee received nearly $700,000 “for a single month of work” yet couldn’t provide auditors with documentation proving that amount was justified, the report said.
“And this is the kicker,” Comer said, noting that, within days of approving the grant, the grant manager left BHS and “later started to provide consulting services to the grantee,” the report says.
BHS failed to monitor that specific grant recipient to ensure funds were spent for approved purposes, according to the report.
The agency has overseen an escalating amount of funds, the report shows: $193 million in 2023, $209 million in 2024, and $333 million in 2024.
During the period audited—July 2022 through the end of 2024—BHS managed “830 unique grant agreements,” the report said.
BHS paid some grantees for work performed before executing grant agreements, the report stated, overpaid two grantees, and did not use competitive bidding to award some grants.
The report shows that some BHS staff complained of “poor leadership practices,” saying they received insufficient training to do their jobs properly.
“One staff member shared, ‘Executive leadership has repetitively shown staff that they won’t take the staff’s concerns or questions seriously until something serious happens or it makes the news,’” the report said.
Gandhi listed steps the department will take to correct the problems in line with the report’s recommendations.
