Top takeaway: What actually happened in the most widely reported cases of fraud and recommendations for the state that are grounded in evidence.
In recent months, MCN has heard from many of you about growing concerns with the public narrative around fraud and nonprofits, and the policy responses that have followed. At the same time, the legislature has been advancing proposals that add new oversight requirements to state grants, often framed as a response to recent fraud.
Because of this, we took a closer look at what has actually happened in the most widely reported cases of misuse of public dollars in Minnesota. We reviewed those cases in detail to ensure we could speak clearly and accurately with policymakers, and to help shift the conversation toward solutions that are grounded in evidence.
Three important findings
There are no public reports
of fraud in state grant
programs, either competitive or direct (legislatively named).
Individuals predominantly
used for-profit entities (such
as LLCs) to commit fraud.
“Nonprofits” named in
recent cases of fraud were
not legally compliant entities and all were promptly dissolved by the state and/or had tax exemption revoked by the IRS for those reasons.
Individuals can conduct fraudulent activities through many different types of entities, including nonprofits. However, tax-exempt nonprofits are generally held to a higher standard of transparency and public accountability than for-profit organizations. Nonprofits that receive funding must file annual reports, and financial tax forms are publicly accessible.
According to the Association of Certified Fraud Examiners’ “Occupational Fraud 2024: A Report to the Nations:”
Nonprofit organizations experience fraud much less frequently than other sectors and experience losses half the size of those at other types of organizations.
Of the fraud they studied, 10 percent was conducted through entities formed as nonprofits, as opposed to 42 percent at private companies, 26 percent at public companies, and 17 percent in government.
Policy recommendations based in evidence
Focus oversight reforms where fraud has occurred.
Recent high-profile fraud cases in Minnesota show no evidence of fraud in state competitive or direct grant programs. Adding additional oversight to these programs will not address the primary sources of fraud and will unnecessarily burden legitimate organizations while wasting state resources.
While some grant programs already include robust review processes, oversight practices vary across agencies. Any reforms to grant administration should focus on streamlining processes, reducing administrative burden, and supporting effective service delivery.
Recommendation: Do not waste state resources by adding unnecessary oversight or restrictions to state grant contracts, legislatively-named or competitive, where evidence of fraud has not been recently publicly identified.
Avoid disruptions to essential services.
Broad funding cuts or payment freezes can disrupt essential, lifesaving services critical to the well-being of Minnesota children, elders, families, and those living with disabilities. Sudden suspensions without warning, preplanning, or input from service providers may force legitimate service providers to reduce services, lay off staff, or close entirely. This is especially devastating for communities in rural areas where alternative providers may not exist.
If payment holds are necessary during investigations, they should be targeted, time-limited, and based on specific providers or billing patterns, rather than applied broadly across programs. Agencies should clearly communicate timelines and criteria for restoring payments.
When potential misuse is identified, it is critical that agencies develop plans to ensure individuals continue receiving needed services.
Recommendation: Require a continuity-of-services plan, approved by the Office of Administrative Hearings, before broadly pausing funding to any basic needs provider. Plans must include clear timelines and ensure services continue for current and newly eligible clients.
Apply transparency standards across all providers.
Both nonprofit and for-profit entities provide basic-needs services in Minnesota. However, nonprofits are subject to significantly stronger transparency and accountability requirements. Nonprofits(specifically 501(c)(3) charitable nonprofits) must:
- Publicly disclose annual IRS Form 990 filings, including revenue sources, expenses, executive compensation, lobbying expenses, and governance policies.
- Conduct independent financial audits if annual revenue exceeds $750,000 and submit them to the Minnesota Attorney General.
- Register with and report annually to the Minnesota Attorney General’s Office, if they meet criteria in accordance with the Minnesota’s Charitable Solicitation Act.
- Maintain a board of directors with at least three members who hold fiduciary responsibility and cannot serve for a term that exceeds 10 years.
Most recent fraud cases in Minnesota have involved for-profit entities, including LLCs, which are not subject to comparable transparency requirements. Minnesotans deserve the same level of accountability regardless of whether services are delivered by nonprofit or for-profit entities.
Recommendation: Require for-profit providers receiving taxpayer dollars for basic needs services to meet equivalent transparency, oversight, and reporting standards as nonprofits.
Engage providers operating with integrity.
Many basic needs providers operate under rigorous licensing, monitoring, and compliance requirements. Some also participate in multiple state programs and have practical insight into how payment systems operate.
These providers can help identify:
- Gaps and inconsistencies across programs;
- Administrative barriers to compliance; and
- Reforms that strengthen oversight without disrupting critical services.
Recommendation: Partner with experienced nonprofit providers to identify problems and develop practical, community informed solutions that reduce fraud risk while maintaining effective service delivery.
Invest in state infrastructure.
Effective oversight requires adequate staffing and technology.
As of 2023, the state used 13 different grant management systems, and some agencies relied on a mix of email, documents, and manual processes to manage grants, according to the Office of the Legislative Auditor. The state’s technology used to administer reimbursement-based services, such as Medicaid and other claims-based payment systems, is outdated in many cases and limits the state’s ability to monitor payments, identify problems early, and support providers effectively.
Additionally, while fraud has not been identified in grant programs, improved technology could help agencies track organizational performance across programs and strengthen oversight overall.
Recommendation: Invest in modern technology and the staffing required to support it. Attach existing Employer Identification Numbers as a unique identifier to recipients of state grant contracts and approved direct service providers in all state grants management and accounting systems to enable greater data-sharing capabilities across agencies.
Share with your legislators
MCN has shared these findings and policy recommendations with all legislators and the Governor’s office and is actively engaging in conversations to advance these recommendations.
We also encourage you to share this information with your legislators. Hearing directly from nonprofit organizations that are located in a legislator’s region is critical right now. When you reach out, we suggest highlighting the recommendations that resonate most with your work and community, and pairing them with personal testimony that illustrates how considered, targeted policy decisions can meaningfully impact the communities you serve.
Handout that summarizes findings and recommendations: https://minnesotanonprofits.org/wp-content/uploads/2026/04/MCN-Handout-Protecting-Public-Dollars-and-Preserving-Critical-Services.pdf.
Please don’t hesitate to reach out with questions or if you’d like support in connecting with your legislators.