Minnesota’s Medicaid and pandemic relief systems were flooded with fraud, auditors and prosecutors say, and the state’s political leadership is facing sharp questions as officials who were part of that administration advance in the 2026 Senate race.
A Minneapolis day care famously misspelled “Learning” on its sign as “Learing” and still collected large sums from state child care funds, including $1.9 million in a single year. Inspectors recorded violations in June 2025 and found no evidence of fraud before the operators asked to close their license in January and the FBI searched the facility in April. That mismatch—sloppy oversight and big checks—keeps coming up across programs run out of the statehouse.
Lieutenant Governor Peggy Flanagan won the Democratic Senate primary by a wide margin, defeating Rep. Angie Craig roughly 59 percent to 39 percent, and is campaigning on the record of the administration she served. A lieutenant governor carries almost no statutory authority, yet Flanagan is running on policies and achievements from an administration now under scrutiny for massive losses. Her critics say she has not fully answered how the state let those programs balloon and be abused.
Federal prosecutors flagged fourteen state-run Medicaid-style programs in Minnesota as high risk for fraud, and spending across those programs more than doubled from $2.06 billion in 2021 to $4.32 billion in 2025. Housing Stabilization Services alone exploded from an expected $2.6 million a year to payments across more than 700 companies, reaching $108.8 million in 2024. By August 2025 the state asked federal authorities to help end the program because of fraud.
Other programs showed similar runaway growth: Integrated Community Supports jumped from $4.6 million to $193.6 million, and autism services rose from $6.1 million to $443 million. Providers billed roughly $18 billion across the fourteen programs, and the U.S. attorney leading prosecutions warned thieves may have taken “half or more” of it, calling what happened “a staggering, industrial-scale fraud.” Those are the numbers prosecutors and auditors are using as their baseline.
Feeding Our Future, the nonprofit that received federal pandemic food money, turned into one of the largest theft cases, with roughly a quarter billion dollars taken and sixty-eight defendants convicted so far. The operator was sentenced in May to forty-one years and eight months and filed an appeal in June. Prosecutors have tied wide-ranging international money movements and luxury purchases to the scheme.
Investigations found jaw-dropping examples: a defendant claimed $47 million for eighteen million meals that were never served and spent money on a Porsche and lakefront property, wired more than $1 million to banks in China, and sent nearly $3 million to Kenya. An indictment described cash handoffs of $138,000, banker’s boxes of $270,000, then $300,000, totaling $1,287,000 received over days. One defendant bought an overwater villa in the Maldives while owing nearly $48 million back to taxpayers.
That reputation drew outsiders. Two men from Philadelphia recruited Medicaid recipients at homeless shelters, billed $3.5 million to the housing program, and fabricated paperwork using ChatGPT when insurers asked for proof. The prosecutor who charged them said Minnesota had “developed a fraud tourism industry,” and federal authorities followed with reporting requirements for cross-border transfers to crack down on money leaving the region.
The Treasury Department now requires financial institutions in Hennepin and Ramsey counties to report transfers of $3,000 or more leaving the country, a geographic targeting order renewed into 2027. Federal regulators are treating parts of Minnesota as a corridor for money laundering, which is a brutal label for any state and a political liability for those who ran the system.
Warnings piled up for years. Tony Lourey, who led the human services department at the start of Governor Tim Walz’s administration, testified he briefed the governor’s chief of staff about fraud in child care and transportation programs in early 2019. The state education agency logged at least thirty complaints about Feeding Our Future between June 2018 and December 2021 and notified the governor’s office in April 2020. The state stopped payments in March 2021, resumed them in April, and continued issuing checks until January 2022 despite those flags.
Ramsey County Judge John Guthmann later put out a statement correcting the governor: all of the payments “were made voluntarily, without any court order.” The auditor also found that the department limited enforcement out of fear of litigation and bad publicity, noting that “the threat of legal consequences and negative media attention affected MDE’s decisions about the regulatory actions it did and did not take against Feeding Our Future.” The auditor wrote that action could have been taken “regardless of a threat of litigation or negative press.”
Whistleblowers inside state government say they were sidelined. Faye Bernstein, who worked two decades in contract management and compliance, says she saw the exposure in 2018 and 2019, was told to stop asking questions, and had duties stripped away. She summed up what she found bluntly: “The lack of guardrails was pretty shocking.”
Local reporting and citizen investigations pushed the issue into the open. A video from a young man showing empty, blacked-out day cares prompted a response from the state, with the department of children, youth and families saying it had “questions about some of the methods used” in the footage. Federal raids followed, and one owner featured in the video pleaded guilty in July to stealing $4.6 million in child care funds and more than $850,000 in federal food money.
Attorney General Keith Ellison met privately on December 11, 2021 with associates of Feeding Our Future while his office was defending the education department against the nonprofit’s lawsuit. He told the group, “This has my attention. I’m extremely frustrated by it, but we are in the middle of the battle with the agencies now. And I can tell you now (Governor) Walz agrees with me that this piddly, stupid stuff running small people out of business is terrible.” Donors who met that circle gave campaign maximums to Ellison and to his son, and one donor later pleaded guilty to money laundering.
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Ellison’s office notes its Medicaid fraud unit has brought hundreds of convictions since 2019, but critics point to the optics of meeting defendants, accepting donations, and holding the money through years of indictments as a serious problem for accountability.
National coverage framed the primary as a win for progressives while noting Republicans hoped the fraud scandal would become a political opening. In the Democratic primary debate Rep. Angie Craig said, “It pisses me off that you completely put all of the responsibility on the governor of Minnesota when you were the No. 2 elected leader.” Flanagan answered, “She’s now going on to use Republican talking points.” That exchange captures how accountability questions get dismissed as partisan attacks.
Flanagan insists she was largely locked out of governing and that the lieutenant governor’s role is limited, a point underscored by reporting that she was “largely iced out from the work of governing.” Yet she campaigns on policies tied to the administration’s record, which raises the political question of how someone who says she had no real authority also claims credit for its agenda.
Governor Walz publicly pushed back on fraud estimates, calling one figure “sensationalized” and accusing critics of “defamation,” even saying they could make their requests for his resignation “over my dead body.” He then left the governor’s race on January 5, and the political fallout has continued as prosecutors and auditors keep unpacking how the state was looted while official warnings accumulated.
Nobody proofread the sign. Nobody counted the $1.9 million. An attorney general met with people his office was suing and kept their checks. A compliance officer who raised alarms in 2018 was sidelined, and the state paused and then resumed payments to operations it had already flagged. Democrats are promoting the number two from that administration as their Senate nominee while those facts remain under federal and legislative scrutiny.
