The review found widespread oversight failures in behavioral health grants totaling more than $425 million.
ST. PAUL, MN — Minnesota’s Office of the Legislative Auditor reported that employees in the state’s Department of Human Services created and backdated documents during an audit of behavioral health grants presented to lawmakers on Jan. 6, 2026, prompting an internal investigation and bipartisan alarm at the Capitol.
The findings matter because they cut to whether taxpayer dollars intended for mental health and substance-use services are tracked and spent as intended. Legislative Auditor Judy Randall said her team documented instances in which records appeared to be produced after auditors requested them, a step she described as unprecedented in her 27 years with the office. The audit focused on the Behavioral Health Administration, which oversees hundreds of grants statewide. Acting Human Services Commissioner Shireen Gandhi told legislators the department was “shocked” by the discovery and is tracing how it occurred while moving to strengthen controls and training.
Auditors briefed the Legislative Audit Commission for nearly three hours on Tuesday, Jan. 6, detailing a review that covered July 1, 2022, through Dec. 31, 2024. Over that period, behavioral health grant expenses totaled about $425.5 million across roughly 830 agreements, many with nongovernmental providers. Randall said auditors encountered a “systemic effort” to produce documentation that did not exist when first requested. “We’ve suspected this in past work but had never been able to prove it; we documented it here,” Randall told lawmakers. Members in both parties called the revelations troubling and pressed for details on who directed the actions and whether any staff have been disciplined.
Beyond the fabricated records, auditors outlined concrete breakdowns in oversight. They found incomplete financial reconciliations in 63 of 71 grant agreements they tested and identified more than $13 million in payments made when progress reports were missing or late. The agency paid $915,540 to six grantees for work performed before grant agreements were executed and overpaid two grantees a total of $41,803. In one case, a grantee received $672,647.78 for a single month of work but could not provide detailed invoices or participant data; the DHS grant manager who approved that payment left the agency days later and began consulting for the same organization, according to auditors. The office also said the department steered $2.5 million to 13 existing grantees while bypassing the competitive award process and could not document 27 of 67 required monitoring visits.
The report flags gaps tied to state policy and everyday practices. For 15 of 24 “single-source” grants tested, the division either bypassed competitive rules or could not justify sole sourcing. Some grant agreements omitted requirements for progress reports; others lacked dates showing when reports arrived. Auditors performed their own reconciliations and estimated nearly $296,000 paid to 11 of 18 reviewed grantees covered unsupported or erroneous costs. A staff survey conducted as part of the audit underscored training and leadership problems: most respondents said they did not receive sufficient grant-management training before taking on responsibilities, and just 19% reported “complete” understanding of how to conduct financial reconciliations. Leadership feedback described inconsistent decisions and poor communication. Auditors cautioned that such conditions increase the risk that services are not provided or documented and that funds are misapplied.
Context from prior reviews shows a pattern. The Behavioral Health Administration faced findings in 2021 and again in 2024 over grant oversight, and other high-risk social service programs have struggled with monitoring and verification. Minnesota has drawn national attention over fraud-related cases in recent years, particularly in Medicaid-funded programs and grant-supported services. While the new report did not attempt to quantify fraud within behavioral health grants, it framed the control environment as too weak to rely on documentation without independent testing. Auditors also highlighted a legislative wrinkle from 2024 that required direct “payments” to named entities outside normal grants policies, leaving recipients outside standard oversight unless lawmakers specify otherwise.
On next steps, Gandhi said the department is conducting a “full and thorough” investigation into how and why records were backdated or created and whether any manager directed the behavior. She said personnel actions are possible but did not announce discipline. The department has begun enhancing staff training, adding supervisory checks on reconciliations, and building controls meant to prevent payments when required reports are late or missing. Lawmakers signaled they will consider tightening the state’s grants policy, addressing conflicts of interest, and clarifying oversight for legislatively named payments. Further briefings are expected at upcoming commission meetings, and the auditor’s office plans a follow-up on whether recommendations are implemented later this year.
Outside the hearing rooms, reaction focused on services at stake. Providers say grants fund peer support, treatment navigation, and culturally specific care across Minnesota, where demand has risen with the opioid crisis and youth mental health needs. “There are faces behind these dollars,” Rep. Duane Quam said during the meeting, arguing that weak oversight undermines delivery to clients. Gandhi said DHS supports unannounced on-site monitoring, stronger documentation standards, and clearer expectations for subcontractors. Several legislators referenced the single-month, $672,647.78 payment case as evidence that basic controls—like invoices, participant logs, and conflict-of-interest checks—must be enforced consistently.
As of Sunday, auditors say they cannot fully rely on certain documentation produced during the review, and the agency is still determining whether those records were fabricated intentionally or created belatedly to fill gaps. DHS will report back on its internal probe and policy changes at the next Legislative Audit Commission session, expected later in January. The auditor’s recommendations remain on the table, from requiring timely progress reports to conducting and documenting site visits and reconciliations before final payments.
Author note: Last updated January 11, 2026.