Potential Legal Loophole Limits DHS Authority in Fraud Investigations, Auditor Says

A 30-year-old error in the definition of fraud may prevent Minnesota's Department of Human Services from suspending payments to providers under kickback investigation.

Apr. 8, 2026 at 4:06am

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A dimly lit, cinematic painting of a simple government office desk or filing cabinet, with warm sunlight streaming in through a window and casting deep shadows across the scene, conveying a sense of quiet contemplation and the weight of bureaucratic oversight.The potential legal loophole uncovered in Minnesota's fraud investigation procedures casts a long shadow over the state's efforts to protect taxpayer funds.Grant Today

A recent audit by the Minnesota Office of the Legislative Auditor has uncovered a potential legal loophole that could be limiting the state's Department of Human Services (DHS) from suspending payments to social service providers while they are under investigation for alleged kickback schemes. The auditor found that the word 'kickbacks' is not included in DHS's definition of fraud, which could require the agency to continue payments even during active fraud investigations.

Why it matters

This issue raises concerns about the state's ability to effectively investigate and address potential fraud within its social safety net programs. The ability to suspend payments during an investigation is an important tool to protect taxpayer funds, and the lack of this authority could undermine fraud prevention efforts.

The details

According to Deputy Legislative Auditor Katherine Theisen, the problem stems from a 30-year-old error in DHS's administrative rules. Theisen stated that the current definition of fraud does not explicitly include 'kickbacks,' meaning DHS 'could be required' to continue payments to providers even while they are under investigation for kickback schemes. The auditor recommended that DHS update its administrative rules to clearly define fraud to include kickbacks, or that the state legislature act to resolve the issue through legislation.

  • The potential legal loophole was uncovered during a recent audit by the Office of the Legislative Auditor (OLA) of how DHS handled some claims of kickbacks in autism services.
  • Theisen presented the findings to the House Fraud Prevention and State Agency Oversight Policy Committee on Tuesday, April 8, 2026.

The players

Katherine Theisen

Deputy Legislative Auditor who led the audit that uncovered the potential legal loophole in DHS's fraud definition.

Shireen Gandhi

Commissioner of the Minnesota Department of Human Services (DHS).

Patti Anderson

Republican state Representative and Vice Chair of the House Fraud Prevention and State Agency Oversight Policy Committee.

Kristin Robbins

Republican state Representative and Chair of the House Fraud Prevention and State Agency Oversight Policy Committee.

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What they’re saying

“It's unclear whether DHS had legal authority to suspend payments to an MA provider while investigating credible allegations of kickbacks alone.”

— Katherine Theisen, Deputy Legislative Auditor

“Administrative rule-making is a little bit of a lengthy process... Either way, it needs to happen and will happen, but it would be faster to do it by statute.”

— Shireen Gandhi, DHS Commissioner

“It would be quicker if they just updated their rule-making, frankly. We have to solve the problem... It should be the number one thing that we do this session is to deal with the fraud.”

— Patti Anderson, State Representative, Vice Chair of House Fraud Prevention Committee

What’s next

DHS Commissioner Shireen Gandhi has signaled support for the agency to begin the process of updating its administrative rules to clearly define fraud to include kickbacks, even as state lawmakers work on legislation to address the issue.

The takeaway

This case highlights the importance of maintaining up-to-date administrative rules and definitions to ensure state agencies have the necessary legal authority to effectively investigate and address potential fraud within social safety net programs. The potential loophole uncovered by the auditor raises concerns about the state's ability to protect taxpayer funds, underscoring the need for prompt action to close this gap.