HF4914

Purpose

This bill would create a system to assess and publicly display the fraud risk of Minnesota political subdivisions (local governments that receive state funding). It ties grant eligibility to meeting a minimum fraud risk benchmark, and it sets up a pilot program to test and refine the scoring system before full implementation.

Main Provisions

• Fraud risk score definition

  • A standardized numerical or categorical score that measures the relative risk of fraud, waste, abuse, or mismanagement in a political subdivision.
  • Uses factors like internal controls, financial practices, governance structures, audit findings, and other risk indicators as determined by the state auditor.

• Fraud risk score assignment

  • The state auditor must assign a fraud risk score to every political subdivision at least once every two years (or more often if needed).

• Methodology

  • The state auditor must develop and publish a uniform scoring method.
  • The method should be reviewed and updated periodically to reflect new risks and best practices.
  • The state auditor will provide guidance and technical help to subdivisions.

• Data collection

  • Subdivisions may be required to submit information about finances, operations, governance, and internal controls needed to calculate scores.
  • Data provided must follow applicable data privacy laws.

• Public dashboard

  • The state auditor must maintain an online, publicly accessible dashboard showing fraud risk scores for each subdivision.
  • Dashboard must include: the latest score, a label or graphic for the score, date issued, explanation of the scoring scale and benchmark, and historical scores if available.

• Fraud risk benchmark for grant eligibility

  • A minimum acceptable fraud risk benchmark score will be established in consultation with relevant state offices.
  • Subdivisions must meet or exceed this benchmark to be eligible for grants from state departments or agencies.
  • If a subdivision does not meet the benchmark, it can submit a corrective action plan detailing deficiencies, remediation steps, and a timeline. The state auditor may temporarily allow grant eligibility if the plan is deemed sufficient.

• Rulemaking

  • The state auditor may adopt rules to implement the scoring system, including scoring criteria, reporting formats, and corrective action plan requirements.

Pilot Program

• Pilot required

  • A pilot program will be established to test and refine the fraud risk scoring system.

• Duration

  • The pilot must run for 18 to 24 months after the act’s effective date.

• Scope and limitations during the pilot

  • Fraud risk scores produced during the pilot may not be used to determine grant eligibility.
  • Public dashboard scores shown during the pilot are preliminary and not final determinations.
  • Participation in the pilot must not result in adverse funding consequences for participating subdivisions.

• Evaluation and adjustment

  • The state auditor will evaluate the pilot and may revise the scoring method, data requirements, and benchmarks based on results.
  • Revisions should involve consultation with subdivisions and stakeholders; the Legislative Audit Commission must be consulted before adjusting the grant eligibility benchmark.

• Report

  • Within 60 days after the pilot ends, the state auditor must report to legislative leaders with a summary of findings and any changes to the scoring method or benchmark.

Significance and Potential Effects

• What changes the bill would bring

  • Introduces a statewide, standardized fraud risk scoring system for local governments.
  • Links grant eligibility to meeting a defined fraud risk benchmark.
  • Increases transparency through a public dashboard displaying scores and benchmarks.
  • Creates a formal corrective action process for those not meeting the benchmark.
  • Establishes a pilot program to test and refine the approach before full implementation.

• What stays the same or is unchanged

  • Grant programs still exist; however, eligibility would be tied to the new benchmark and scoring system (with pilot exceptions).

• Potential impacts to local governments

  • Increased reporting requirements and data sharing with the state auditor.
  • Greater emphasis on internal controls and risk management to meet benchmarks.
  • Possible changes in grant access based on scores, subject to pilot findings and future rulemaking.

Implementation Timeline ( High-Level)

• Pilot program
  • Begins after the act’s effective date and runs 18–24 months.
• Post-pilot
  • State auditor would report findings and may adjust scoring rules, data needs, and the benchmark based on pilot results.

Terminology and Concepts Used in the Bill

• Fraud risk score
• Political subdivision
• State auditor
• Grant eligibility / grants
• Benchmark (fraud risk benchmark)
• Corrective action plan
• Public dashboard
• Data practices laws
• Methodology
• Pilot program
• Internal controls
• Governance structures
• Audit findings

Relevant terms - fraud risk scoring system - grants to political subdivisions - Minnesota Statutes sections 6.94 to 6.96 - data submission and data practices - public, online score dashboard - evaluation and reporting - rules and rulemaking

Relevant Terms - fraud risk score - political subdivision - state auditor - grant eligibility - benchmark - corrective action plan - public dashboard - data practices laws - methodology - pilot program - internal controls - governance structures - audit findings