Minnesota Audit: Agency Backdated Files, Paid $915K Too Early

Minnesota's Office of the Legislative Auditor⧉ tested whether the Department of Human Services' Behavioral Health Administration (BHA) had adequate controls over the $191 million it paid nonprofits for mental-health and substance-use-disorder grants between July 2022 and December 2024.▸ The audit's conclusion, stated plainly: BHA "did not comply with most requirements we tested and did not have adequate internal controls over grant funds." Thirteen findings followed -- and the auditor's own cover letter adds that some of BHA's records were backdated or created only after the audit began.

BHA is a young office -- DHS split it out as its own "administration" in July 2024 to focus leadership specifically on grants and contracts for mental-health and addiction services, after years of the work sitting inside a broader behavioral-health-and-hearing-services division.▸ It manages a large book of business: 830 unique grant agreements during the audit's scope, 590 of them with nonprofits, moving over $191 million to community organizations that run everything from opioid-reversal supply programs to residential treatment for children transitioning out of psychiatric hospitals. Auditors tested a sample of that book against Minnesota's Office of Grants Management (OGM) policy -- competitive bidding, statutory citations, timely payments, progress reports, site visits, financial reconciliations, performance evaluations -- and BHA failed the test on nearly every count. Three of the 13 findings are explicitly marked "Prior Audit Finding Not Resolved," meaning OLA had flagged the same gaps before and BHA still hadn't closed them by this audit.

Audits like this one run on documentation -- invoices, sign-in sheets, monitoring notes, financial reconciliations that prove a grantee spent public money on what it said it would.▸ In this audit's cover letter, Legislative Auditor Judy Randall wrote that her team "identified a number of documents that BHA either backdated or created after our audit began," and that under generally accepted government auditing standards, evidence carrying too high a risk of leading auditors to an incorrect conclusion isn't sufficient to rely on. One example from inside the report: a grant manager told auditors monitoring visits to a grantee happened on time in May 2024, October 2024, and January 2025 -- but the documentation showing that was created in February 2025, after the audit had already started, and the manager could produce no notes, emails, or calendar entries to back up the claim.

The audit's starkest example involves one grantee auditors visited in person.▸ The grantee could not produce detailed invoices or program-participant data to justify a $672,647.78 payment for a single month of work -- the very first payment DHS made under the grantee's $1.6 million agreement. The grantee had passed that money to 14 subcontractors, paying each a flat $40,000 regardless of what they'd actually delivered; of the two subcontractors OLA visited, neither could document who they'd served with the funds. The BHA grant manager who had approved the $672,647.78 reimbursement left the department days later and went on to provide consulting services to that same grantee. Asked why such a large first-month request wasn't questioned, BHA management told auditors it couldn't answer -- the grant manager was gone, and the grant-management system held too little information to reconstruct the decision.

The failures compound across the grant lifecycle.▸ Auditors found 45 of 61 tested grant agreements, worth over $46.5 million combined, didn't cite the specific legal authority for their program -- a basic safeguard against an agency funding something it was never authorized to fund. Among the 10 grants tested with the largest amendment-driven growth, combined awards rose from $14.8 million to $38.0 million, and one grew 830% across four amendments, from $600,006 to $5.58 million. BHA bypassed competitive bidding for an entire $2.5 million mental-health-provider-supervision program, handing all of it to 13 existing grantees from a different program rather than opening it up; it also awarded $447,789 without competition to eight grantees for Narcan and Naloxone supplies, and one federal single-source grant worth $1,636,000 went to a grantee that BHA's own justification said was named in a federal spending plan -- except auditors checked that plan and the grantee wasn't in it. BHA documented the justification only after the money went out, and couldn't explain why because the staff member responsible had already left.

The oversight gaps aren't just paperwork risk -- they're the mechanism by which BHA would know whether services actually reached anyone.▸ Auditors found BHA made 274 payments, totaling over $13 million, to 13 grantees with missing or past-due progress reports it never withheld money over; seven more grantees, paid $2.1 million combined, had no progress-report requirement written into their agreements at all. BHA could not demonstrate 27 of 67 required monitoring visits happened. And when it came time to judge whether grantees had actually performed, BHA couldn't show a completed evaluation for 58 of 70 grant agreements tested -- 28 of those evaluations were overdue by the agency's own 60-day rule, and when 10 finally surfaced, all were more than 200 days late, appearing only after auditors asked for them.

Auditors re-tested a small, independent sample of their own: 44 reimbursements to 18 grantees, checked against payroll records, invoices, and bank statements.▸ Eleven of the 18 had problems -- $295,898.20 in costs that were unsupported, not actually incurred, incurred outside the reimbursement period, or misreported. One grantee told auditors it has "no employees, only consultants," and billed $22,623.20 in vague "consulting fees" it couldn't itemize. A separate calculation error on a different grantee's reimbursements produced a $48,855 overpayment on one grant -- and as of August 2025, BHA still hadn't determined the size of the matching error on that grantee's second grant, because the grant manager responsible hadn't known about the problem until auditors asked.

Not every dollar in this story escaped controls by accident.▸ In 2024, lawmakers appropriated $1.5 million for a payment -- the law's own word, not "grant" -- to a certified community behavioral-health clinic, and $354,000 for a payment to an immigrant-services nonprofit. DHS's Contract and Legal Compliance Division told auditors that because the statute didn't use the word "grant," the department didn't treat the money as a grant, which means it isn't subject to OGM policy at all: no competitive bidding requirement, no monitoring visits, no financial reconciliation, no performance evaluation. BHA asked the two recipients to sign acknowledgments that they might have to return the funds if they don't spend it as the law requires, but that's the extent of the oversight mechanism for $1.854 million in public money -- a gap OLA says exists because the Legislature never decided whether it wanted these payments treated as grants in the first place.

OLA surveyed BHA's current staff in summer 2025 and got responses from 161 of 196 employees, an 86% return rate.▸ Most didn't raise ethics concerns about leadership directly -- but 13% (20 employees) said they'd been asked to do something they believed unethical, and 11% (18 employees) said they'd been asked to do something contrary to state law or regulation, mostly attributed to BHA leadership. One employee's response, quoted in the report: "I was told not to complete financial reconciliations when the grantee was choosing not to renew their contract...despite this going against the requirements...." Among staff who said they managed grants, 67% disagreed they'd gotten sufficient training on OGM policy before they started managing BHA grants, and 73% disagreed they'd been sufficiently trained for the job's responsibilities generally -- a workforce, in other words, that BHA's own people say was set up to produce exactly the findings in this report.