Minnesota social services officials didn’t investigate complaints about alleged kickbacks in an embattled autism intervention program despite having legal authority to do so, according to a new auditor’s report.

The report, which the Office of the Legislative Auditor released Tuesday, March 17, is the state’s latest effort to address a staggering fraud scandal that thrust Minnesota into the national spotlight and was a factor in Gov. Tim Walz dropping his bid for a third term.

Fraud has emerged as a major issue in the legislative session, with lawmakers advancing a flurry of proposals to prevent bad actors from bilking social programs. Prosecutors say the amount of stolen benefits across an array of social services could total in the billions of dollars. In December, a Minnesota Star Tribune review of federal court cases showed the alleged fraud uncovered to date is closer to $218 million, though that number is expected to grow as state and federal investigations into the state programs continue.

Autism therapy providers across the country have faced scrutiny for inflating prices to extract large Medicaid reimbursements.

The state’s new 28-page report concerns a Medicaid-funded program, Early Intensive Developmental and Behavioral Intervention, that allows people under 21 with autism spectrum disorder and their families to get assistance from a team of professionals.

Rumors began swirling about wrongdoing in the program as early as 2024, when a whistleblower complained to the Legislative Auditor that the state Department of Human Services’ oversight arm hadn’t adequately addressed complaints. The same year, federal officials raided two autism centers.

In the new report, the Legislative Auditor determined the social services agency’s Office of Inspector General was justified in closing most of those complaints. But the report also found the Department of Human Services erred in not investigating three allegations that autism intervention providers offered to pay families to enroll their kids in the providers’ services. It’s illegal under federal law to offer or receive money to induce referrals for services covered by federal health care programs, including Medicaid.

Department officials told the Legislative Auditor they closed the complaints because the agency lacked legal authority to look into kickback concerns alone. In their telling, the Department of Human Services can act on kickback complaints only if they’re paired with fraud allegations.

The Legislative Auditor disagreed.

The department “has long had legal authority to address allegations of kickbacks,” the report reads. The Legislative Auditor’s report faulted the agency for not doing enough to address kickback allegations, arguing that state statutes have long empowered the agency to impose sanctions for such misbehavior. And it skewered social services officials for not tidying up internal policies that would have given them more authority to root out misconduct.

When asked by the Minnesota Star Tribune for comment, the Department of Human Services pointed to a written response to the report from Commissioner Shireen Gandhi.

“We are pleased that the auditors found the work of the Office of Inspector General to be thorough and appropriate in most of the cases sampled,” Gandhi wrote.

“And while the Department believes it currently has legal authority to suspend payments to a Medicaid provider while investigating credible allegations of kickbacks, we agree with the recommendation that fraud should be defined to more clearly include kickbacks,” Gandhi wrote.

The report adds to mounting concerns about the autism intervention program, one of over a dozen benefits the Walz administration flagged as vulnerable to fraud.

It’s one of several that saw massive growth in recent years, with program spending jumping from around $5 million in 2018 to more than $242 million last year, according to social services data.

Advocates argued the service, funded through a mix of state and federal dollars, filled a dire need. But legislators and state officials have also acknowledged that it operated for years without adequate guardrails.

Walz, who has faced sharp criticism from Republicans for the fraud crisis, addressed the findings at a March 17 news conference.

“I don’t think any of what’s in that report — and I’ve not gone through the whole thing — is all that surprising,” he said, adding that it highlights an “ongoing problem” with the autism program.

Rep. Mohamud Noor, DFL-Minneapolis, was unsparing about the report’s main findings.

“It’s unacceptable not to do the appropriate investigation,” Noor said, though he pointed to a recently passed anti-kickback law that affords state officials more authority to investigate fraud.

Rep. Joe Schomacker, R-Luverne, said in a statement that the department’s choice not to investigate kickbacks “represents a significant failure.”

“If and when credible concerns are raised, agencies are expected to act using the tools they already have,” he said. “Instead, this report shows those tools were not used, and in some cases, not fully understood.”

In 2024, federal officials raided two autism centers after finding “substantial evidence” of health care fraud. Investigators said in a search warrant application that at least a dozen defendants in the Feeding Our Future fraud scandal — the massive scheme to defraud food meal programs for low-income kids — had ties to autism intervention providers.

Since then, the state has audited providers, terminating at least 18 for cause, department Inspector General James Clark said in February. Officials are also imposing license requirements and have halted enrollment of new providers of the service.

Kickback schemes have further marred the program’s reputation. In a case brought by federal prosecutors, parents received illegal kickbacks as a part of a fraud scheme run by illicit health care businesses enrolled in the state’s autism program.

Owners of two autism centers — Smart Therapy in Minneapolis and Star Autism in St. Cloud — allegedly paid off parents of children approved for autism care to keep kids enrolled and over-bill the state. Some received between $300 and $1,500 per month, per child, according to prosecutors.

Asha Farhan Hassan, 28, owner of Smart Therapy, and Abdinajib Hassan Yussuf, 28, owner of Star Autism, each pleaded guilty to defrauding the program. The business owners admitted to inflating the number of hours and types of services provided to children. In all, the two falsified much of $20 million in claims billed to the state and health insurers, according to prosecutors.

Hassan and Yussuf are awaiting sentencing. Prosecutors have said more defendants will be charged in connection with fraud in the autism program and other social services.

House DFL Leader Zack Stephenson, of Coon Rapids, called the fraud problem “deeply frustrating,” saying it’s not just state funds that have been stolen but “dollars that are supposed to be going to the most vulnerable people in Minnesota.”

“The idea that someone would steal from a kid with autism or a homeless person — it’s despicable,” he said.

Rep. Kristin Robbins, R-Maple Grove, called the social services agency “complicit in fraud,” saying in a statement that it has “repeatedly failed to investigate credible allegations of fraud in multiple programs over many years.”

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Jessie Van Berkel, Bill Lukitsch and Allison Kite of the Minnesota Star Tribune contributed to this story.

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