Tim Walz couldn't run fast enough from Minnesota's exploding fraud crisis.
He dropped out of the race hoping to make the scandal disappear.
But Minnesota's auditor just caught Tim Walz's DHS fabricating documents after the audit started.
Auditor Exposes "Systemic Effort" To Manufacture Fake Records
Minnesota's Department of Human Services got caught red-handed creating backdated paperwork to fool auditors investigating $425 million in behavioral health grants.
Legislative Auditor Judy Randall dropped a bombshell during testimony before state lawmakers — her team discovered DHS employees manufactured documents for monitoring visits that supposedly occurred in May 2024, October 2024, and January 2025.
The paperwork didn't exist until February 2025, created only after auditors demanded proof the visits happened.
Randall told the Legislative Audit Commission she'd never seen anything like it in nearly three decades on the job.
"It is frankly unacceptable for the agencies we audit to do this type of activity," Randall stated.
"In the 27 years I've been with OLA, I have never seen this before."
The audit covered grants distributed by DHS's Behavioral Health Administration between July 2022 and December 2024 — money meant to help Minnesotans struggling with addiction and mental health problems.
BHA handed out the funds to 830 organizations, most of them non-governmental groups.
Auditors found missing progress reports, incomplete financial records, and zero documentation for required monitoring visits.
Then they discovered something worse — freshly minted paperwork backdated to look like BHA had done its job all along.
Randall described it as "a systemic effort" to deceive auditors, not isolated incidents by a few rogue employees.
"We have never been able to prove it, to document it, and we did in this case," Randall explained.
Grant Manager Approved $672,000 Then Went To Work For The Recipient
The audit uncovered a conflict of interest that would make even the shadiest Washington lobbyist blush.
One BHA grant manager approved a payment of $672,647.78 to a grantee for a single month of work.
No detailed invoices.
No documentation showing what services were actually provided.
A few days after approving the payment, that grant manager left DHS and started providing consulting services to the same organization.
The grantee couldn't justify the payment to auditors.
Republican State Senator Mark Koran called it "a blatant conflict of interest."
"This kind of misconduct erodes public trust and undermines the effectiveness of grant programs," Koran said in a press release.
When auditors dug deeper, they found BHA paid nearly $1 million to grantees before grant agreements were even finalized.
The audit identified 63 grants out of 71 examined that had serious problems.
BHA couldn't prove it completed 27 of 67 required monitoring visits.
For 24 visits involving 11 grantees, the agency had nothing — until auditors started asking questions and suddenly paperwork appeared with dates from months earlier.
Employees Warned Leadership Would Ignore Problems Until Media Found Out
An internal survey of BHA employees revealed the dysfunction ran deep.
A stunning 73% of staff said they didn't receive necessary training to properly manage grants.
One employee's comment captured the agency's culture perfectly: "Executive leadership has repetitively shown staff that they won't take the staff's concerns or questions seriously until something serious happens or it makes the news."
That anonymous staffer nailed it.
DHS leadership ignored problems, cut corners on oversight, and only scrambled to manufacture documentation when auditors came knocking.
Republican House Speaker Lisa DeMuth called the report "shocking" and demanded immediate answers about the apparent document falsification.
"It's time to clean house and restore honesty and accountability in state agencies," DeMuth said.
Acting DHS Commissioner Shireen Gandhi claimed she was "shocked" by the findings and accepted responsibility.
"If somebody directed staff to falsify documents, it is absolutely wrong, not OK," Gandhi told lawmakers.
"It's an HR matter for sure, it may be more than that."
One internal audit has been referred to law enforcement, though Gandhi refused to provide details about potential criminal investigations.
Republican State Representative Patti Anderson expressed disbelief at the scale of the fraud.
"Half the grants had some sort of backdating or falsification of the documents," Anderson said.
"It wasn't just one or two people. It was a big chunk of the staff. Someone must have told them to do that."
The audit's bottom line: BHA failed to follow the rules and lacked basic controls over grant funds.
Koran summed up the systemic failure bluntly.
"The OLA report shows a complete breakdown in how DHS's Behavioral Health Administration manages hundreds of millions in taxpayer-funded grants," Koran said.
"BHA failed to verify that grantees were providing the services they were paid for, failed to put basic financial controls in place, and then created documentation after the fact to mislead auditors."
This damning audit is just the latest black eye for Minnesota's fraud-plagued DHS under Walz's watch.
Federal prosecutors estimate up to $9 billion in taxpayer funds may have been stolen through various fraud schemes in Minnesota programs since 2018.
Walz dropped his re-election campaign on January 5, citing the need to focus on addressing fraud rather than defending his political career.
The timing suggests he knew this audit bomb was about to explode.
Now Minnesotans are finding out their state government wasn't just negligent in preventing fraud — officials actively fabricated records to cover up their failures.
Sources:
- Andrew Mark Miller, "Scathing audit reveals more fraud concerns inside top Minnesota agency with fabricated documents, 'misconduct'," Fox News, January 7, 2026.
- Josh Verges, "Audit finds widespread problems in DHS oversight of behavioral health grants," Star Tribune, January 7, 2026.
- "Audit Finds Minnesota DHS Produced False Documents in Behavioral Grant Program," Legal Insurrection, January 7, 2026.
- Briana Bierschbach, "Another nexus of fraud? Auditor zeros in on drug, mental health grants," Minnesota Reformer, January 7, 2026.
- "Legislative auditor: Minnesota DHS employees backdated, created documentation in behavioral health grant program," KSTP, January 7, 2026.
