Legislative audit finds major grant-management failures at Minnesota DHS; commissioner pledges fixes and investigations

The House Human Services Finance and Policy Committee heard a January 2026 performance audit from the Office of Legislative Auditor (OLA) that concluded the Department of Human Services’ Behavioral Health Administration (BHA) “did not comply with most of the criteria we tested,” leaving the state with multiple control failures across hundreds of grants.

The audit, presented by Audit Director Valentina Stone, covered July 1, 2022, through Dec. 31, 2024, and found BHA spent roughly $425,000,000 on grant activity during that period. OLA issued 13 findings, including four repeat items, and highlighted several concrete problems: inappropriate use of single-source awards (15 of 24 grants tested), more than $915,000 paid before grant agreements were executed, nearly $3,100,000 paid under single-source processes when competition was available, and multiple instances of insufficient monitoring and financial reconciliation.

Stone said auditors "questioned an unusually large first payment of $672,000 for a single month of work" at one grantee and that OLA’s site visits could not determine whether that grantee or its subcontractors provided the contracted services. In independent reconciliations, OLA identified approximately $296,000 in questioned payments across sampled grants and found BHA paid more than $13,000,000 to grantees with missing or past-due progress reports.

DHS Commissioner Shareen Gandhi told the committee she agrees with the findings and outlined steps the department is taking. Gandhi said DHS elevated the Behavioral Health unit to an administration in August 2024, appointed new leadership, added compliance and quality-assurance staff, and created a central grants office in 2023 to standardize grant templates and training. She said mandatory grant training completion among BHA staff is 100% and DHS overall is at a 99.7% completion rate.

Gandhi also described an internal investigation launched after OLA raised concerns about backdated or potentially falsified documents. "We secured the investigative resources and developed an investigative plan," she said, and added that phase one findings were turned over to human resources and appropriate leadership actions were being taken. Gandhi said DHS canceled the contract identified by auditors and referred the matter to the Bureau of Criminal Apprehension and the Minnesota Attorney General’s Office "for recoupment of funds." She said DHS is pursuing recovery where documentation does not substantiate that services were delivered but did not provide an overall recovery estimate to the committee.

Legislators pressed DHS on culture and accountability. Representative Gordon said the department should be "enraged" by the findings and called for a stronger, independent inspector general. Representative Knudson and others criticized promotions within DHS, noting that some officials involved in oversight roles served during the audit period. Gandhi responded that she has taken steps to strengthen program integrity and that many of the problematic payments identified were external to DHS operations; she said DHS has an inspector general and that agency investigators have been active on fraud matters.

Judy Randall, legislative auditor, told the committee the legislature shares responsibility for designing grant programs with clearer "guardrails," saying laws should spell out program goals, allocation methods and mechanisms to hold recipients accountable. Randall also recommended better IT interoperability so agencies can more effectively detect anomalies and coordinate oversight.

The audit flagged a collection of specific numeric issues: OLA found BHA inappropriately used single-source procedures in 14 grants resulting in about $3,100,000 in payments; one $1,600,000 grant lacked documentation to justify single-source treatment; OLA questioned a $672,647 first payment in one case and flagged almost $42,000 of overpayments to two grantees. OLA also found BHA failed to document required monitoring visits for 27 of 67 required visits in the sampled universe and that many financial reconciliations were missing or incomplete.

Committee members asked for regular follow-ups. Representative Gander asked DHS to report back with incremental steps that would make the problems "unthinkable." Several lawmakers asked how much money the state could recover; Gandhi said recovery efforts are active but declined to estimate a recovery percentage. OLA recommended the legislature decide whether certain appropriations labeled as payments should be treated as grants subject to Office of Grants Management oversight.

The committee concluded with auditors and DHS agreeing to ongoing follow-up; Gandhi estimated that many audit findings would be addressed by midyear, with remaining items completed by the end of the year, and that DHS internal audits would test whether implemented controls are effective.

The committee did not vote on legislation or take formal enforcement action during the hearing; members signaled interest in stricter statutory guardrails, improved IT and data sharing, and further oversight to protect taxpayer dollars.