Gov. Tim Walz creates new state fraud investigation unit, proposes tougher criminal penalties

Fed up with fraudsters bilking government programs, Minnesota Gov. Tim Walz on Friday created a new state fraud investigations unit via executive order and proposed legislative measures aimed at stopping the theft of public funds.

The DFL governor's actions come amid growing concerns about fraud in the state. The FBI raided two autism treatment centers last month as part of an investigation into "substantial evidence" of fraudulent Medicaid claims in Minnesota's autism program. Federal investigators said the alleged autism program fraud overlapped with the massive Feeding Our Future scheme, in which $250 million was stolen during the pandemic from a federally funded meals program for children.

"These are not just financial crimes against the state and the taxpayers of Minnesota. These are crimes against children," Walz said during a Friday morning news conference at the State Capitol. "What we've seen in Minnesota is, these crimes have basically targeted programs that either feed children or help children in need."

"It's simply unacceptable," Walz added.

Walz's new executive order creates a centralized investigations unit, housed within the Bureau of Criminal Apprehension (BCA), to fight fraud in state programs. Fraud investigators from the Minnesota Department of Commerce will be transferred to the new unit.

"Combining the resources and expertise of both of these agencies ... will enhance the state's ability to prevent, investigate and prosecute a broad array of crimes involving fraud," said BCA Superintendent Drew Evans. "It will help stop those people who commit these crimes from continuing to hurt our communities."

Republican legislative leaders, who've raised concerns about fraud in state programs for years, were cool to Walz's actions. House Republican Leader Lisa Demuth, who's poised to become speaker when the session starts, said "creating a fraud bureau overseen by the same administration that allowed over a billion dollars in fraud means today's executive action is nothing but smoke and mirrors."

"We need real change to crack down on fraud, and that starts with a process that is truly independent of the leadership that allowed fraud to run rampant over the last five years," Demuth, R-Cold Spring, said in a statement. "House Republicans will be unveiling a comprehensive fraud package that treats this as the serious problem it is."

The governor proposed several other measures that would require legislative approval when lawmakers return to the State Capitol on Jan. 14 for their 2025 session.

Walz wants to add nine more staff members to the Medicaid Fraud Control Unit within the Attorney General's Office, give state agencies more authority to shut off payments to suspected fraudsters and create a pilot program that would use artificial intelligence to detect and flag payment anomalies for Medicaid providers.

Minnesota IT Commissioner Tarek Tomes said "sophisticated tools and technology" are being used to steal public money. Artificial intelligence would help the state proactively protect taxpayer funds, he said.

"We will look to use machine learning and generative AI to gain deep data insights that will help us identify potential risk factors and spot early signs of fraudulent behavior," Tomes said, adding that the pilot project would be a step toward "building this capacity across executive branch programs."

Walz also proposed a new "theft of public funds" law that would carry tougher criminal penalties than the existing theft statute. Additionally, he wants to make it a state crime to provide kickbacks, add more state employees dedicated to reducing fraud and enhance oversight of charter schools.

In response to concerns about the autism program, Walz proposed creating a provisional licensing system for autism service providers. Minnesota currently doesn't require autism centers to be licensed, giving the state little oversight.

Altogether, the legislative proposals would cost $39 million over the next two years, according to the governor's office.

Senate Minority Leader Mark Johnson, R-East Grand Forks, said Walz's executive order is "too little and too late."

"It remains to be seen if Walz can accept recommendations by the Office of the Legislative Auditor, hold his commissioners accountable, enforce the current laws and roles to combat fraud, or work with Republicans to pass and approve legislation that will need bipartisan support to pass," Johnson said in a statement. "That's the true test of whether Walz and Democrats are going to take fraud prevention efforts seriously."

Walz said he welcomes the GOP's fraud prevention proposals and looks forward to working with Republicans.

A spokesperson for the governor said Walz met with his Cabinet Friday morning "to reiterate the importance of his announcement today and discuss his expectation that agency leaders take immediate action."

The governor's office sent an email to all state employees Friday afternoon, stressing that "it is particularly important that supervisors and agency leaders work diligently to build a culture of compliance in our agencies so that employees trust that their concerns are valued and taken seriously."

Minnesota agencies haven't always been skeptical enough of the people and entities receiving public funds, Walz told reporters Friday. He said they've had a tendency of, "we want to help, we want to get this money out."

That mindset has opened the door for fraud, Walz said, and it must change.

"I think it's probably a culture of generosity. I think it's a culture of being a little too trusting," Walz said. "I don't think those are bad character traits, but I don't think they're necessarily as effective in a time where we're seeing fraud increase."