Purpose

• Establish the Fraud Isn’t Free Act to address fraud in programs run by Minnesota state agencies. The Act aims to require agencies to take corrective actions, potentially suspend enrollments, impose budget reductions, and dismiss employees when fraud occurs. It also directs the incorporation of fraud impacts into state budget forecasts and repeals the expiration of certain agency payment-withholding authorities.

Main Provisions

• Definitions

  • Fraud: an intentional act to deprive someone of property or money or to obtain property or money by deception; includes submitting false information to government entities to gain greater benefits; includes crimes against any program or attempts to commit those crimes.
  • Agency: includes state agencies and the Minnesota State Colleges and Universities.
  • Program: any state- or federally funded program administered by an agency that involves transferring or disbursing public funds or resources.
  • Law enforcement agency: state or local agencies that conduct criminal investigations.
  • Criminal investigative data: data treated as such under state law when shared with the agency and Legislative Audit Commission.

• Fraud Suspected (notification and timing)

  • If fraud is suspected, the agency head must report the total estimated amount fraudulently obtained to the commissioner of management and budget and to the chair and vice chair of the Legislative Audit Commission, and take required actions within 30 days after withholding payments or after an investigation is completed.

• Corrective Action Plan

  • The agency head must submit a corrective action plan to the chairs and ranking minority members of the appropriate legislative budget committees.
  • Plan must include: a summary of suspected fraud and total amount, how it occurred and who was responsible, steps taken or planned (e.g., staff dismissal, discipline, training), any recommended changes to state law, and a plan to recover the fraudulently obtained money.

• Enrollment Suspension

  • The agency head must suspend further enrollment in the affected program until requirements under related statute are completed.

• Leadership and Employee Dismissal

  • The agency head must discharge each employee who knowingly abetted or allowed the fraud (including supervisors and heads of affected divisions).
  • Dismissal follows standard state procedures, and the person discharged is prohibited from state employment for five years.

• Law Enforcement Investigations Reporting

  • When a law enforcement investigation is completed and referred for prosecution, the agency must promptly notify the agency head and the Legislative Audit Commission.
  • The provided information is treated as criminal investigative data under state law.

Fiscal and Budget Impacts

• Budget Reductions Due to Fraud

  • Upon receiving a fraud report, the budget commissioner must reduce unexpended allotments in the current biennium for agency administration by 10% and for the agency head’s salary by 25%.
  • The commissioner may defer or suspend other obligations to enable these reductions.
  • For the subsequent biennium, the agency administration appropriation base must be reduced by 10% and the agency head salary base by 25%.
  • Reductions continue until the agency head certifies that:
  • all relevant evidence has been referred to law enforcement,
  • responsible staff have been identified and discharged, and
  • at least 3% of the fraudulently obtained money has been recovered and deposited in the general fund.

• Reporting of Reductions

  • The budget commissioner must promptly report each reduction to the relevant legislative committees’ chairs and ranking minority members.

Forecast Changes

• Forecast Parameters and Fraud

  • A new forecast subdivision requires the forecast to assume current laws and reasonable growth projections, estimate revenues and expenditures for all lawful obligations, and exclude future general obligation bond authorizations.
  • The forecast must address fraud in state programs as required by a new subdivision.

• Fraud in State Programs

  • The forecast must include an estimate and discussion of the impact of fraud on the state budget and summarize actions the administration has taken since the last forecast to detect and prevent fraud.

Repeal and Sunset

• Repeal

  • Repeals a prior statutory subdivision that dealt with program payments withheld due to fraud (old framework).

• Sunset

  • The repealed section’s provisions are scheduled to expire on July 1, 2027, indicating a temporary framework under the old law being replaced by the new act.

Significance and Practical Effects

• Strengthened accountability: Agencies face clear steps if fraud is suspected, including corrective plans, enrollment freezes, and mandatory staff discipline or dismissal.
• Deterrence through penalties: Budget cuts and salary reductions create a financial incentive to prevent fraud and quickly address it.
• Enhanced coordination: Requires prompt reporting to budget officials and legislators and formal notification to law enforcement when investigations proceed.
• Budget forecasting: Incorporates fraud considerations directly into budget projections, aiming to quantify and address fraud’s financial impact.
• Short-term transition: Repeal of the old withholding provision and a sunset on the old framework indicate a transitional period toward the new approach.

Relevant Terms - Fraud Isn’t Free Act - fraud - corrective action plan - enrollment suspension - budget reductions - unexpended allotments - agency administration - agency head salary - staff dismissal - law enforcement - criminal investigative data - program - agency - forecast - 16A.103 - 15.013 subdivision 6 - general fund - withholding payments - Legislative Audit Commission - 43A.33 - sunset