Fraud Isn't Free Act established; corrective action plans, enrollment freezes, agency budget reductions, and employee dismissal required when fraud is committed against a program administered by the state; and other fraud prevention provisions established.

A bill for an act

relating to state government; establishing the Fraud Isn't Free Act; requiring

corrective action plans, enrollment freezes, agency budget reductions, and employee

dismissal when fraud is committed against a program administered by the state;

incorporating fraud impacts in budget forecasts; repealing the expiration of agency

payment withholding authority; amending Minnesota Statutes 2024, section

16A.103, by adding a subdivision; Minnesota Statutes 2025 Supplement, section

16A.103, subdivision 1a; proposing coding for new law in Minnesota Statutes,

chapters 15; 16A; repealing Minnesota Statutes 2025 Supplement, section 15.013,

subdivision 6.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.
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CITATION.
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This act may be cited as the "Fraud Isn't Free Act."

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Sec. 2.

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[15.0135] FRAUD; CORRECTIVE ACTION PLANS AND OTHER

REQUIREMENTS.

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Subdivision 1.

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Definitions.

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(a) For purposes of this section, the following terms have

the meanings given.

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(b) "Agency" has the meaning given in section 16B.01, subdivision 2, and includes the

Minnesota State Colleges and Universities.

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(c) "Fraud" means an intentional or deliberate act to deprive another of property or

money or to acquire property or money by deception. Fraud includes knowingly submitting

false information to a federal, state, or local government entity for the purpose of obtaining

greater compensation or benefit than the person is legally entitled. Fraud also includes acts

that constitute a crime against any program, or the attempts or plans to commit those crimes,

including but not limited to theft in violation of section 609.52, perjury in violation of section

609.48, and aggravated forgery and forgery in violation of sections 609.625 and 609.63,

and substantially similar federal laws.

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(d) "Law enforcement agency" means an agency of the state or a political subdivision

with the power to conduct criminal investigations.

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(e) "Program" means any program administered by an agency and funded by the state

or the federal government that involves the transfer or disbursement of public funds or other

public resources.

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Subd. 2.

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Fraud suspected.

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An agency head must report the total estimated amount of

money fraudulently obtained under a program to the commissioner of management and

budget and the chair and vice-chair of the Legislative Audit Commission, and take the

actions required under subdivisions 3 to 5, no later than 30 days after:

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(1) the agency head withholds payment due to suspected fraud under section 15.013,

section 256B.04, or another state or federal law; or

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(2) a law enforcement agency completes an investigation of alleged fraud committed

against a program and reports to the agency head and the chair and vice-chair of the

Legislative Audit Commission as required under subdivision 6.

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Subd. 3.

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Corrective action plan.

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(a) The agency head must submit a corrective action

plan to the chairs and ranking minority members of the legislative committees with

jurisdiction over the agency's operating budget.

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(b) The plan must include the following elements:

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(1) a summary of the suspected fraud, including the total estimated amount of money

fraudulently obtained, how the suspected fraud may have been perpetrated, and the agency

staff who are responsible for the program at issue;

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(2) any steps, including but not limited to staff dismissal, staff discipline, or, at a

minimum, staff training, that the agency has taken or will take to better detect or prevent

fraud moving forward;

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(3) any recommended changes to state law; and

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(4) the agency's plan to recover all money that was fraudulently obtained.

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Subd. 4.

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Enrollment suspended.

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The agency head must suspend further enrollment in

the program until the agency has completed the requirements under section 16A.093,

subdivision 1, paragraph (b).

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Subd. 5.

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Leadership and employee dismissal; hiring prohibited.

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(a) The agency head

must discharge each employee of the agency whose intentional or negligent act or failure

to act abetted the fraud or allowed it to occur. For purposes of this paragraph, "employee"

includes but is not limited to:

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(1) the deputy or assistant agency head responsible for the division or unit that administers

the program; and

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(2) the director or other head of the division or unit identified in clause (1).

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(b) The discharge procedure is as provided in section 43A.33, subdivision 3.

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(c) A person discharged under this subdivision is prohibited from state employment for

five years.

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Subd. 6.

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Law enforcement investigations; reporting.

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(a) When a law enforcement

agency completes an investigation of alleged fraud committed against a program and refers

the case for prosecution to the United States attorney for the district of Minnesota, the

attorney general, or a county attorney, the law enforcement agency must promptly notify

the head of the state agency that administers the program and the chair and vice-chair of

the Legislative Audit Commission. The notification must identify all suspects, the program

at issue, and the time period. The notification must also summarize evidence of fraud.

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(b) The agency head and the chair and vice-chair of the Legislative Audit Commission

must treat the information provided by a law enforcement agency under paragraph (a) as

criminal investigative data under chapter 13.

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Sec. 3.

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[16A.093] AGENCY BUDGET REDUCTIONS DUE TO FRAUD.

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Subdivision 1.

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Budget reduction required.

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(a) When the commissioner receives a fraud

report under section 15.0135, the commissioner must reduce unexpended allotments in the

current biennium for the reporting agency's administration or central office functions by

ten percent, and for the reporting agency head's salary as prescribed under section 15A.082

or other law by 25 percent. Notwithstanding any other law to the contrary, the commissioner

is empowered to defer or suspend prior statutorily created obligations that would prevent

effecting such reductions. The commissioner must also reduce the appropriation base for

agency administration by ten percent, and the appropriation base for agency head salary by

25 percent, for the subsequent biennium.

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(b) The reductions required under paragraph (a) continue until the agency head certifies

to the commissioner and the chairs and ranking minority members of the legislative

committees with jurisdiction over the agency's operating budget that:

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(1) the agency has referred all relevant evidence to law enforcement;

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(2) responsible agency staff have been identified and discharged as required under section

15.0135, subdivision 5; and

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(3) ....... percent of the state money fraudulently obtained has been recovered by the

proper authority and deposited in the general fund.

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Subd. 2.

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Reporting.

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The commissioner must promptly report each reduction under

subdivision 1 to the chairs and ranking minority members of the legislative committees with

jurisdiction over the agency's operating budget and to the chairs and ranking minority

members of the Committee on Finance in the senate and the Committee on Ways and Means

in the house of representatives.

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Sec. 4.

Minnesota Statutes 2025 Supplement, section 16A.103, subdivision 1a, is amended

to read:

Subd. 1a.

Forecast parameters.

The forecast must assume the continuation of current

laws and reasonable estimates of projected growth in the national and state economies and

affected populations. Revenue must be estimated for all sources provided for in current law.

Expenditures must be estimated for all obligations imposed by law and those projected to

occur as a result of inflation and variables outside the control of the legislature. Expenditure

estimates related to the amount of state bonding must not include any assumptions of future

authorizations of state general obligation bonds.
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The forecast must address fraud in state

programs as required under subdivision 1k.
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Sec. 5.

Minnesota Statutes 2024, section 16A.103, is amended by adding a subdivision to

read:

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Subd. 1k.

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Fraud in state programs.

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The forecast must include an estimate and discussion

of the impact of fraud on the state budget and summarize any actions the administration has

taken since the last forecast to detect and prevent fraud in programs funded or administered

by the state.

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Sec. 6.
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REPEALER.
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Minnesota Statutes 2025 Supplement, section 15.013, subdivision 6,

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is repealed.

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APPENDIX

Repealed Minnesota Statutes: 26-06890

15.013 PROGRAM PAYMENTS WITHHELD; FRAUD.

Subd. 6.

Sunset.

This section expires July 1, 2027.