A Session of Scrutiny: Fraud, Funding, and the Future of Nonprofit Policy in Minnesota 

The 2026 legislative session concluded last month, defined by narrow majorities, bipartisan dependency, and heightened external scrutiny. With a 50/50 split in the House, a one-seat majority in the Senate, and a transitioning administration in a major election year, the legislature operated under conditions that required near-universal agreement for meaningful policy movement.

In practical terms, even broadly supported proposals required bipartisan buy-in to advance, while measures perceived as controversial faced barriers to passage. Although hundreds of bills were introduced—including more than 140 tracked or flagged by MCN—the ones that ultimately advanced through both chambers were comparatively limited, reflecting a session defined as much by constraint as by productivity.

These dynamics unfolded against a broader atmosphere of scrutiny. Federal and state attention on fraud and misuse of public funds, building over several years of high-profile investigations and enforcement actions, became a defining backdrop to policymaking this session. Fraud concerns were also frequently cited as part of the rationale for Operation Metro Surge this past winter, a major enforcement and oversight initiative that had wide-ranging impacts across Minnesota.

At the same time, lawmakers were navigating multiple, often competing, priorities. These included responding to federal policy changes under H.R. 1 (read more from the Minnesota Budget Project), addressing concerns related to gun violence following two years with high profile instances of violence within our community, and managing continued pressure around public safety and government accountability. Each carried significant political and emotional weight, narrowing the legislature’s capacity to take on additional priorities and leaving less room for compromise on other issues.

Against this backdrop, some policy priorities advanced while others stalled. Notably, proposals such as HF 4447 / SF 4535 aimed at providing relief to small businesses affected by Operation Metro Surge failed to move forward despite recognition of need. For nonprofit organizations, this session was a helpful reminder that sometimes ideas alone are not enough. Whether legislation moves often depends as much on the political environment as on the policy itself.

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Fraud, Oversight, and the Growing Scrutiny of Nonprofits 

As you might have expected, it was difficult to escape the conversation around fraud throughout session. Following years of investigations, media attention, public concern, and increased scrutiny from both state and federal leaders, lawmakers introduced a wide range of proposals aimed at strengthening accountability and restoring public confidence in how taxpayer dollars are spent. Nearly every conversation involving grants, contracts, public spending, or service delivery eventually returned to questions of fraud prevention, transparency, and oversight. 

For nonprofit organizations, these conversations often extended beyond individual cases and into broader debates about government partnerships, grantmaking, and public trust. As lawmakers grappled with how best to respond, MCN worked to ensure nonprofit voices remained part of the discussion. 

From the outset, MCN approached fraud-related proposals from a simple premise:  

Fraud should be investigated, wrongdoing should be prosecuted, and public dollars should reach their intended purpose. At the same time, policy responses should be grounded in evidence, proportional to the problem they seek to solve, and carefully designed to avoid unintended consequences for organizations serving Minnesotans in good faith. 

To help inform policymakers, nonprofit leaders, and the public, MCN conducted an analysis of publicly reported fraud cases and developed recommendations for strengthening oversight. That work informed a set of questions MCN believes policymakers should ask when evaluating fraud-related proposals:  

• Does this policy address a documented area of risk?  

• Does it target the spaces where fraud has historically occurred?  

• Will it improve accountability without disrupting essential services?  

• And does it create new barriers for nonprofits, particularly culturally specific, rural, or community-based organizations that often operate with limited administrative capacity? 

Our recommendations emphasized targeted oversight, stronger transparency standards, investments in state technology and infrastructure, and greater collaboration with providers delivering services on behalf of the state. We shared these findings with lawmakers, nonprofit leaders, and the broader public throughout session and continue to use them as a framework for evaluating both current and future proposals. Effective oversight requires systems that can identify and address risk, but it also requires caution against overreach and policy responses that may create unintended consequences. 

This framework was a great additional guide to MCN’s policy lens. In some cases, it led us to support proposals that strengthened oversight capacity. In other cases, it led us to oppose proposals that we believed risked creating barriers for nonprofit organizations without adequately addressing the underlying source of concern. While individual bills differed, our approach remained consistent: support accountability, strengthen public trust, and ensure reforms are effective, targeted, and workable for the communities they are intended to serve. 

As we’ve learned in previous sessions, good intentions do not always translate into good policy outcomes. Several of the proposals introduced this year reflected legitimate concerns about fraud and accountability but also raised important questions about implementation and impact. Rather than asking whether a proposal sounded reasonable, MCN focused on whether it would effectively address the problem it sought to solve and whether it could do so without creating unintended barriers for nonprofits and the communities they serve.  

Legislative Proposal HF 3621/ SF 4283 (passed):

This proposal expanded the state’s authority to withhold payments to providers, grantees, and vendors under certain circumstances involving suspected fraud.  

• Why MCN opposed the proposal: MCN supports strong oversight and recognizes the challenge state agencies face when attempting to stop fraud in real time. However, we were concerned that the bill expanded withholding authority which could result in nonprofit organizations having funding suspended before wrongdoing has been established. We also raised concerns about the appeals process, including provisions requiring providers to appeal directly to the agency responsible for the original decision. 

• What’s next: State agencies will now implement the new authority and establish payment withholding and appeals procedures. MCN will continue monitoring implementation and advocating for protections that ensure accountability without disrupting services for communities. 

While MCN raised concerns about proposals that expanded agency authority without sufficient safeguards, we also supported efforts to strengthen the state’s underlying oversight capacity. One example was legislation creating a statewide Office of the Inspector General. 

Legislative Proposal HF 1/ SF 1219 (passed):

This proposal creates a statewide, independent Office of the Inspector General (OIG) responsible for investigating and helping prevent fraud, waste, and abuse across government programs and systems. Prior to this legislation, several state agencies maintained their own inspector general functions. Establishing a statewide office creates an opportunity to identify patterns, better understand vulnerabilities that may exist across agencies, and strengthen oversight efforts throughout state government. 

• Why MCN supported the proposal: Throughout session, MCN emphasized that effective oversight and accountability require investments in systems, staffing, and infrastructure—not just additional restrictions on nonprofit organizations and grant recipients. We supported the creation of a statewide Office of the Inspector General because we believe it has the potential to improve transparency, strengthen accountability, and provide greater clarity around how the state finds and responds to fraud, waste, and abuse. By taking a broader view across government systems, the office may be better positioned to identify recurring challenges and recommend improvements before problems become larger issues. 

• The OIG legislation was also part of a broader package of investments aimed at strengthening oversight, including added attorneys for the Medicaid Fraud Control Unit and continued investments in modernizing state technology systems. MCN continues to support these types of investments, which can improve both accountability and the efficiency of state processes. 

• What’s next: Implementation of the new office is now underway. Leadership for the Office of the Inspector General is expected to be confirmed by February 1, 2027, through a process requiring a 3/5 vote of the Minnesota Senate. Because the office is being built from the ground up, implementation will take time, with operations expected to continue scaling throughout 2027 and into 2028. MCN will monitor implementation and looks forward to seeing how the office can strengthen oversight while supporting greater transparency and trust in government systems 

Much of the conversation around fraud this session focused on what happens after problems appear. But MCN is also deeply interested in conversations focused on the front end of public funding: how grants are designed, distributed, and accessed in the first place.  

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Grantmaking Reform in a Moment of Heightened Scrutiny 

At the center of MCN’s grantmaking work this session was a focus on improving transparency, consistency, and access in how public funds are distributed, including active participation in the state’s grantmaking reform workgroup and ongoing efforts to ensure that oversight improvements do not unintentionally reduce access for community-based providers.  

Another proposal MCN opposed was the Governor’s recommendation to significantly restrict the legislature’s ability to make direct appropriations, sometimes referred to as legislatively named grants. While the proposal was framed as a response to concerns about accountability and oversight, it would have represented a substantial change to how public dollars are distributed in Minnesota. 

Minnesota distributes public funding through a variety of mechanisms, including reimbursement-based programs, competitive grants, and direct appropriations. Direct appropriations allow the legislature to direct funding to specific organizations, projects, or initiatives and have long served as a tool for responding to emerging needs, supporting innovative programs, and investing in communities that may not fit neatly within existing funding structures. 

While MCN supports efforts to strengthen transparency and accountability, we were concerned that eliminating or significantly restricting this funding mechanism would reduce legislative flexibility without clearly addressing documented areas of fraud or misuse. 

Legislative Proposal HF 4883/ SF 5088 (did not pass):

This proposal would have largely eliminated the legislature’s ability to make direct appropriations—funding directed to specific organizations outside of a competitive grant process—with limited exceptions. 

• Why MCN opposed the provision: While accountability and transparency are essential, MCN viewed this proposal as an over correction to concerns that were not rooted in documented instances of fraud within direct appropriations. Direct appropriations remain an important tool for lawmakers to address emerging needs, support innovative programs, and invest in organizations that may not fit neatly into existing grant structures. Eliminating the tool entirely would have reduced legislative flexibility without addressing the underlying challenges lawmakers sought to solve. MCN mobilized nonprofit organizations across the state, coordinated a sign-on letter with more than 100 organizations, submitted testimony, and supported nonprofit leaders in sharing concerns directly with lawmakers. 

• What’s next: Conversations around direct appropriations and grantmaking reform are likely to continue. MCN supports thoughtful improvements to transparency and accountability while preserving the legislature’s ability to make targeted investments when appropriate. 

Although fraud and accountability dominated many legislative conversations this year, they were not the only issues shaping MCN’s work. Throughout session, we also continued advocating to improve Minnesota’s grantmaking systems, with a particular focus on transparency, accessibility, and reducing unnecessary barriers for applicants. In many ways, these conversations are connected. As policymakers look to strengthen oversight and public trust, it is equally important to ensure that funding systems remain accessible, understandable, and workable for the organizations delivering services in communities across Minnesota. 

Legislative proposal HF 4462/ SF 4628 (passed):

This proposal requires state Requests for Proposals (RFPs) to include a clear cover sheet outlining key eligibility requirements and applicant expectations before organizations begin the application process. 

• Why MCN supported the proposal: Nonprofits have consistently shared that they sometimes find themselves deep into a competitive grant application before discovering they do not meet a key eligibility requirement. That reality creates unnecessary work for applicants, frustration for organizations operating with limited capacity, and inefficiencies for state agencies reviewing applications. 

• MCN supported this bipartisan legislation because it addresses a real challenge with a practical solution. Clear eligibility information at the beginning of the process helps organizations make informed decisions about where to invest their time and resources, while also helping agencies receive stronger applications from eligible applicants. It is a straightforward change that improves transparency and accessibility without reducing accountability. 

• What’s next: As agencies implement the new requirements, MCN will monitor how the changes are working in practice and identify opportunities for further improvement. We remain committed to advancing additional reforms that make state grantmaking more transparent, accessible, and effective while maintaining strong oversight and accountability. 

In a session where major legislation often stalled, the bill also shows what can be done when lawmakers and stakeholders work together to solve a clearly identified problem. Because the House was evenly divided, bipartisan support was essential for meaningful policy movement. This proposal succeeded in part because it focused on a practical improvement that helped both applicants and state agencies. 

Looking Ahead: What Comes Next 

While several of the proposals discussed above became law, others stalled despite significant debate and stakeholder engagement. Many of these ideas are likely to return in future sessions, particularly as lawmakers continue grappling with questions of accountability, transparency, grantmaking reform, and public trust. 

Legislative Proposal HF 3395/ SF 3793 (did not pass) 

• While HF 3395 is primarily directed at state agency oversight and fraud prevention, the bill reflects continued legislative interest in accountability for publicly funded programs.  

• MCN’s concerns centered on the proposal’s broad oversight requirements, increased reporting and compliance obligations. While MCN agreed with the goal of preventing fraud and strengthening accountability, we are still concerned about proposals that could increase compliance burdens without clearly targeting documented areas of risk and contingency plans when legitimate providers are caught in the crossfire. 

Legislative Proposal HF 3093/ SF 3475 (did not pass) 

• HF 3093 sought to strengthen transparency and accountability requirements for organizations receiving public funds. MCN appreciated the bill’s focus on public trust and particularly supported provisions addressing worker misclassification but also found areas where the proposal could be strengthened.  

• For example, many of the oversight functions contemplated by the bill are already incorporated into agency-level pre-award risk assessments, raising questions about how new requirements would interact with existing systems. We also encouraged policymakers to consider registration requirements through the Attorney General’s Office and noted that future conversations should examine oversight within claims-based reimbursement systems, where many high-profile fraud cases have occurred. Although the bill did not advance, the broader questions it raised about transparency, oversight, and accountability are likely to remain part of future legislative discussions. 

While some of these proposals generated debate, they reflect a continuing effort to respond to public concern and administrative pressure, and they are unlikely to disappear from policymaking conversations. 

Another important factor heading into 2027 is the political environment itself. With a major election on the horizon, the composition of both the legislature and the executive branch could shift in ways that meaningfully affect how legislation moves. This session showed that a 50/50 House created a narrow path for passage, where even broadly supported initiatives required bipartisan agreement and compromise to advance. 

Regardless of the outcome, nonprofit organizations will continue to play an important role in shaping policy conversations. Staying engaged, sharing on-the-ground experiences, and helping lawmakers understand the realities facing communities will remain essential. While the specific bills may change, many of the questions that defined the 2026 session—from fraud and accountability to grantmaking reform and access to public funding—are likely to remain central topics in the years ahead.