SF5099

Purpose

• The bill would create a formal fraud risk scoring system for assessing local governments (political subdivisions) and tie that risk score to state grant eligibility. It also requires a pilot program to test the system, with public reporting and ongoing adjustments based on findings.

Key provisions

• Fraud risk scoring system (Sec. 6.94)

  • Definition: A fraud risk score is a standardized numerical or categorical assessment that measures the relative risk of fraud, waste, abuse, or mismanagement in a political subdivision. It uses factors like internal controls, financial practices, governance structures, audit findings, and other risk indicators, as determined by the state auditor.
  • Regular scoring: 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 fraud risk scoring methodology, periodically update it to reflect emerging risks and best practices, and provide guidance and technical assistance.
  • Data collection: Political subdivisions may be asked to submit financial, operational, governance, and internal control information needed to calculate scores. Data submitted are subject to data practices laws.
  • Public dashboard: The state auditor must maintain a publicly accessible online dashboard displaying fraud risk scores for each political subdivision, including the most recent score, a label/graphic, the date issued, an explanation of the scoring scale and benchmark, and any historical scores.

• Fraud risk benchmark for grant eligibility (Sec. 6.95)

  • Benchmark established: In consultation with the commissioner of management and budget and the Legislative Audit Commission, a minimum acceptable fraud risk benchmark score must be established. The benchmark represents an acceptable level of fraud risk and internal control maturity.
  • Grant eligibility condition: Except as provided in a later subdivision, a political subdivision must achieve or exceed the benchmark to be eligible for a grant from any state department or agency.
  • Corrective action plans: If a subdivision fails to meet the benchmark, it may submit a corrective action plan detailing deficiencies, remediation steps, and a timeline. The state auditor may grant temporary grant eligibility if the plan is deemed sufficient.

• Rulemaking (Sec. 6.96)

  • The state auditor may adopt rules to implement sections 6.94 and 6.95, including criteria for scoring, reporting formats, and corrective action plan requirements.

• Pilot program (Sec. 4)

  • Pilot required: The state auditor must establish a pilot program to test and refine the fraud risk scoring system.
  • Duration: The pilot must run for 18 to 24 months after the act takes effect.
  • Scope and limitations: During the pilot, fraud risk scores may not be used to determine grant eligibility, and scores posted publicly must be labeled as pilot results, not final determinations. Participation in the pilot must not cause adverse funding consequences for participating subdivisions.
  • Evaluation and adjustment: The state auditor will evaluate the pilot and may revise the scoring methodology, data requirements, and benchmarks based on pilot results. Stakeholders, including political subdivisions, must be consulted; the Legislative Audit Commission must be consulted before adjusting the grant eligibility benchmark.
  • Report: No later than 60 days after the pilot ends, the state auditor must report to legislative chairs and ranking minority members with a summary of pilot findings and any modifications to the scoring methodology or benchmarks.

Significant changes to existing law

• Introduces a formal, public fraud risk scoring system for all political subdivisions, tied to grant eligibility.
• Establishes a publicly accessible dashboard showing scores and related information.
• Creates a minimum fraud risk benchmark that affects whether subdivisions can receive state grants.
• Establishes a mandatory pilot program to test and refine the scoring system before permanent use.
• Adds requirements for data collection, rulemaking, and ongoing reporting to the Legislature.

Implementation and oversight

• The Minnesota State Auditor leads the scoring system, publishes methodology, collects necessary data (subject to data practices laws), and maintains the public dashboard.
• The process includes collaboration with the commissioner of management and budget and the Legislative Audit Commission for benchmarks and adjustments.
• A formal pilot process and a post-pilot reporting requirement ensure stakeholder input and potential adjustments before full implementation.

Relevant Terms - fraud risk score - fraud risk scoring system - political subdivision - state auditor - fraud risk benchmark - grant eligibility - corrective action plan - public dashboard - data practices - pilot program - scoring methodology - governance - internal controls - audit findings - Minnesota Statutes sections 6.94 to 6.96 - commission of management and budget - Legislative Audit Commission