SF 5137

04/07/26  REVISOR  CR/MG  26-05909      as introduced
  SENATE
  STATE OF MINNESOTA
  NINETY-FOURTH SESSION  S.F. No. 5137
  (SENATE AUTHORS: KUNESH)
  DATE       D-PG  OFFICIAL STATUS
  04/15/2026      8078 Introduction and first reading
  Referred to Education Policy
1.1A bill for an act
1.2relating to education; modifying provisions for the Office of the Inspector General
1.3within the Department of Education; providing for access to records by the Office
1.4of the Inspector General; classifying data; providing for immunity and
1.5confidentiality in reporting or participating in an investigation; establishing a
1.6process for notice, appeal, and withholding of payments; amending Minnesota
1.7Statutes 2024, section 127A.21, subdivisions 1, 1a, 4, 6, by adding subdivisions;
1.8Minnesota Statutes 2025 Supplement, sections 13.82, subdivision 1; 127A.21,
1.9subdivision 5; proposing coding for new law in Minnesota Statutes, chapter 13.
1.10   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.11Section 1. [13.3211] DEPARTMENT OF EDUCATION OFFICE OF THE
1.12   INSPECTOR GENERAL; INVESTIGATIVE DATA.
1.13(a) Data on persons that are collected, maintained, used, or disseminated by the
1.14   Department of Education in an investigation conducted under section 127A.21 are
1.15   confidential data on individuals pursuant to section 13.02, subdivision 3, or protected
1.16   nonpublic data on an individual pursuant to section 13.02, subdivision 13, and shall not be
1.17   disclosed except:
1.18(1) pursuant to section 13.05;
1.19(2) pursuant to statute or valid court order;
1.20(3) to a party named in a civil or criminal proceeding for preparation of a defense;
1.21(4) to an investigator acting on behalf of a county, state, or federal government, including
1.22   a law enforcement officer or attorney in the investigation or prosecution of a criminal, civil,
1.23   or administrative proceeding, unless the inspector general determines that disclosure may
1.24   compromise an investigation; or
Section 1.  1
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2.1      (5) to provide notices required or permitted by statute.
2.2      (b) The data referred to in this section shall be classified as public data upon submission
2.3  to a court in a civil or criminal proceeding, or when the investigation is no longer being
2.4  pursued actively, except that the data shall be disclosed as required to comply with section
2.5  6.67 or 609.456, unless chapter 13 provides otherwise.
2.6      (c) Notwithstanding paragraph (a), the existence of an investigation conducted by the
2.7  Office of the Inspector General or withholding of payment by the commissioner may be
2.8  disclosed if the commissioner, after consulting with the inspector general, determines that
2.9  it will not compromise the investigation.
2.10     EFFECTIVE DATE. This section is effective the day following final enactment.
2.11   Sec. 2. Minnesota Statutes 2025 Supplement, section 13.82, subdivision 1, is amended to
2.12 read:
2.13     Subdivision 1. Application. This section shall apply to agencies which carry on a law
2.14 enforcement function, including but not limited to municipal police departments, county
2.15 sheriff departments, fire departments, the Bureau of Criminal Apprehension, the Minnesota
2.16 State Patrol, the Board of Peace Officer Standards and Training, the Office of the Inspector
2.17 General within the Department of Education, and county human service agency client and
2.18 provider fraud investigation, prevention, and control units operated or supervised by the
2.19 Department of Human Services.
2.20   Sec. 3. Minnesota Statutes 2024, section 127A.21, subdivision 1, is amended to read:
2.21     Subdivision 1. Establishment of Office of the Inspector General; powers; duties. The
2.22 commissioner must establish within the department an Office of the Inspector General. The
2.23 inspector general shall report directly to the commissioner. The Office of the Inspector
2.24 General is charged with protecting the integrity of the department and the state by detecting
2.25 and preventing fraud, theft, waste, and abuse in department programs. The Office of the
2.26 Inspector General must conduct independent and objective investigations to promote the
2.27 integrity of the department's programs and operations. When fraud, theft, or other misuse
2.28 of public funds is detected, the Office of the Inspector General must report it to the
2.29 appropriate law enforcement entity and collaborate and cooperate with law enforcement to
2.30 assist in the investigation and any subsequent civil and criminal prosecution.
Sec. 3.  2
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3.1    Sec. 4. Minnesota Statutes 2024, section 127A.21, subdivision 1a, is amended to read:
3.2      Subd. 1a. Definitions. (a) For purposes of this section, the following terms have the
3.3  meanings given.
3.4      (b) "Abuse" means actions that may, directly or indirectly, result in unnecessary costs
3.5  to department programs. Abuse may involve paying for items or services when there is no
3.6  legal entitlement to that payment., or behavior that is deficient or improper when compared
3.7  with behavior that a prudent person would consider a reasonable and necessary business
3.8  practice given the facts and circumstances.
3.9      (c) "Department program" means a program funded by the Department of Education
3.10 that involves the transfer or disbursement of public funds or other resources to a program
3.11 participant. "Department program" includes state and federal aids or grants received by a
3.12 school district or charter school or other program participant.
3.13     (d) "Excluded" means removed by any means from a program administered by a
3.14 Minnesota state agency or federal agency.
3.15     (d) (e) "Fraud" means an intentional or deliberate act to deprive another of property or
3.16 money or to acquire property or money by deception or other unfair means. Fraud includes
3.17 intentionally submitting false information to the department for the purpose of either
3.18 obtaining a greater compensation or benefit than that to which the person program participant
3.19 is legally entitled or hiding the misuse of funds. Fraud also includes failure to correct errors
3.20 in the maintenance of records in a timely manner after a request by the department. Fraud
3.21 also includes acts that constitute a crime against any program, or attempts or conspiracies
3.22 to commit those crimes, including but not limited to the following:
3.23     (1) theft in violation of section 609.52;
3.24     (2) perjury in violation of section 609.48; and
3.25     (3) aggravated forgery and forgery in violation of sections 609.625 and 609.63.
3.26     (e) (f) "Investigation" means an audit, investigation, proceeding, or inquiry by the Office
3.27 of the Inspector General related to a program participant in a department program.
3.28     (f) (g) "Program participant" means any entity or person, including associated entities
3.29 or persons, that receives, disburses, or has custody of funds or other resources transferred
3.30 or disbursed under a department program. Associated persons or entities include but are not
3.31 limited to vendors or other entities or persons that contract with recipients of department
3.32 program funds.
Sec. 4.  3
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4.1      (h) "Theft" means the act defined in section 609.52, subdivision 2.
4.2      (g) (i) "Waste" means practices that, directly or indirectly, result in unnecessary costs
4.3  to department programs, such as misusing resources. Waste includes an attempt or act using
4.4  or expending resources carelessly, extravagantly, or to no purpose.
4.5      (h) (j) For purposes of this section, neither "fraud," "theft," "waste," nor "abuse" includes
4.6  decisions on instruction, curriculum, personnel, or other discretionary policy decisions made
4.7  by a school district, charter school, cooperative unit as defined by section 123A.24,
4.8  subdivision 2, or any library, library system, or library district defined in section 134.001.
4.9    Sec. 5. Minnesota Statutes 2024, section 127A.21, subdivision 4, is amended to read:
4.10     Subd. 4. Access to records. (a) For purposes of an investigation, and regardless of the
4.11 data's classification under chapter 13, the Office of the Inspector General shall have access
4.12 to all relevant books, accounts, documents, data, and property related to department programs
4.13 that are maintained by a program participant, charter school, or government entity as defined
4.14 by section 13.02.
4.15     (b) Notwithstanding paragraph (a), the Office of the Inspector General must issue a
4.16 subpoena under subdivision 3 in order to access routing and account numbers to which
4.17 Department of Education funds have been disbursed.
4.18     (c) Records requested by the Office of the Inspector General under this subdivision shall
4.19 be provided in a format, place, and time frame reasonably requested by the Office of the
4.20 Inspector General.
4.21     (d) The department may enter into specific agreements with other state agencies related
4.22 to records requests by the Office of the Inspector General.
4.23     (e) In an investigation, program participants must give the Office of the Inspector General
4.24 immediate access without prior notice to any locations of potential record storage and the
4.25 records themselves, whether physical or electronic, during regular business hours, and to
4.26 any records related to a department program. Denying the Office of the Inspector General
4.27 access to requested records is cause for immediate suspension of payment.
4.28     (f) The Office of the Inspector General, at its own expense, may photocopy or otherwise
4.29 duplicate any record related to a department program. Photocopying or electronic duplication
4.30 shall be done on the program participant's premises when immediate access is requested,
4.31 unless removal is specifically permitted by the program participant. If requested, a program
4.32 participant must help the Office of the Inspector General duplicate any department program
Sec. 5.  4
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5.1  record or other records related to a department program's operation, including hard copies
5.2  or electronically stored data, on the day when access is requested.
5.3    Sec. 6. Minnesota Statutes 2025 Supplement, section 127A.21, subdivision 5, is amended
5.4  to read:
5.5      Subd. 5. Sanctions; appeal. (a) This subdivision does not authorize any sanction that
5.6  reduces, pauses, or otherwise interrupts state or federal aid to a school district, charter school,
5.7  cooperative unit as defined by section 123A.24, subdivision 2, or any library, library system,
5.8  or library district defined in section 134.001.
5.9      (b) The inspector general may recommend that the commissioner impose appropriate
5.10 temporary sanctions, including withholding of payments under the department program, on
5.11 a program participant pending an investigation by the Office of the Inspector General if:
5.12     (1) during the course of an investigation, the Office of the Inspector General finds credible
5.13 indicia of fraud, waste, or abuse by the program participant;
5.14     (2) (1) there has been a criminal, civil, or administrative adjudication of fraud, waste,
5.15 or abuse theft, or misuse against the program participant in Minnesota or in another state
5.16 or jurisdiction; or
5.17     (3) the program participant was receiving funds under any contract or registered in any
5.18 program administered by another Minnesota state agency, a government agency in another
5.19 state, or a federal agency, and was excluded from that contract or program for reasons
5.20 credibly indicating fraud, waste, or abuse by the program participant; or
5.21     (4) (2) the program participant has a pattern of noncompliance with an investigation.
5.22     (c) If an investigation finds, by a preponderance of the evidence, fraud, waste, or abuse
5.23 theft, or misuse by a program participant, the inspector general may, after reviewing all
5.24 facts and evidence and when acting judiciously on a case-by-case basis, recommend that
5.25 the commissioner impose appropriate sanctions on the program participant.
5.26     (d) Unless prohibited by law, the commissioner has the authority to implement
5.27 recommendations by the inspector general, including imposing appropriate sanctions,
5.28 temporarily or otherwise, on a program participant. Sanctions may include ending program
5.29 participation, stopping disbursement of funds or resources, monetary recovery, and
5.30 termination of department contracts with the participant for any current or future department
5.31 program or contract. A sanction may be imposed for up to the longest period permitted by
5.32 state or federal law. Sanctions authorized under this subdivision are in addition to other
5.33 remedies and penalties available under law.
Sec. 6.  5
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6.1      (e) If the commissioner imposes sanctions on a program participant under this subdivision,
6.2  the commissioner must notify the participant in writing within seven business days of
6.3  imposing the sanction, unless requested in writing by a law enforcement agency to
6.4  temporarily delay issuing the notice to prevent disruption of an ongoing law enforcement
6.5  agency investigation. A notice of sanction must state:
6.6      (1) the sanction being imposed;
6.7      (2) the general allegations that form the basis for the sanction;
6.8      (3) the duration of the sanction;
6.9      (4) the department programs to which the sanction applies; and
6.10     (5) how the program participant may appeal the sanction pursuant to paragraph (f).
6.11     (f) A program participant sanctioned under this subdivision may, within 30 days after
6.12 the date the notice of sanction was mailed to the participant, appeal the determination by
6.13 requesting in writing that the commissioner initiate a contested case proceeding under
6.14 chapter 14. The scope of any contested case hearing is limited to the sanction imposed under
6.15 this subdivision. An appeal request must specify with particularity each disputed item, the
6.16 reason for the dispute, and must include the name and contact information of the person or
6.17 entity that may be contacted regarding the appeal.
6.18     (g) The commissioner shall may lift sanctions imposed under this subdivision if the
6.19 Office of the Inspector General determines notifies the commissioner that is has determined
6.20 there is insufficient evidence of fraud, waste, or abuse theft, or misuse by the program
6.21 participant. The commissioner must notify the participant in writing within seven business
6.22 days of lifting the sanction.
6.23   Sec. 7. Minnesota Statutes 2024, section 127A.21, subdivision 6, is amended to read:
6.24     Subd. 6. Data practices. (a) It is not a violation of rights conferred by chapter 13 or any
6.25 other statute related to the confidentiality of government data for a government entity as
6.26 defined in section 13.02 to provide data or information under this section.
6.27     (b) The inspector general is subject to the Government Data Practices Act, chapter 13,
6.28 and shall protect from unlawful disclosure data classified as not public. Data collected,
6.29 created, received, or maintained by the inspector general relating to an audit, investigation,
6.30 proceeding, or inquiry are subject to section sections 13.3211, 13.39, and 13.82.
Sec. 7.  6
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7.1    Sec. 8. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision to
7.2  read:
7.3      Subd. 8. Immunity and confidentiality. (a) A person who makes a good faith report
7.4  is immune from any civil liability that might otherwise arise from reporting or participating
7.5  in the investigation. Nothing in this subdivision affects an individual's or entity's
7.6  responsibility for any monetary recovery under existing law or contractual obligation when
7.7  receiving public funds.
7.8      (b) For purposes of this subdivision, "person" means a natural person.
7.9      (c) After an investigation is complete, the reporter's name and any identifying information
7.10 must be kept confidential. The subject of the report may compel disclosure of the reporter's
7.11 name only with the consent of the reporter or upon a written finding by a district court that
7.12 the report was false and there is evidence that the report was made in bad faith. This
7.13 subdivision does not alter disclosure responsibilities or obligations under the Rules of
7.14 Criminal Procedure, except that when the identity of the reporter is relevant to a criminal
7.15 prosecution the district court shall conduct an in-camera review before determining whether
7.16 to order disclosure of the reporter's identity.
7.17   Sec. 9. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision to
7.18 read:
7.19     Subd. 9. Limits on receiving public funds; prohibition. (a) This subdivision does not
7.20 authorize any action that reduces, pauses, or otherwise interrupts state or federal aid to a
7.21 school district, charter school, cooperative unit as defined in section 123A.24, subdivision
7.22 2, or any library, library system, or library district defined in section 134.001.
7.23     (b) For purposes of this subdivision, "program participant" includes individuals or persons
7.24 who have an ownership interest in, control of, or the ability to control a program participant
7.25 in a department program.
7.26     (c) If a program participant is excluded from a department program, the inspector general
7.27 shall notify the commissioner, who shall:
7.28     (1) prohibit the excluded program participant from enrolling in, receiving grant money
7.29 from, or registering in any other program administered by the commissioner; and
7.30     (2) disenroll or disqualify the excluded program participant from any other program
7.31 administered by the commissioner.
Sec. 9.  7
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8.1      (d) If a program participant enrolled, licensed, or receiving funds under any contract or
8.2  program administered by a Minnesota state agency or federal agency is excluded from that
8.3  program, the inspector general shall notify the commissioner, who may:
8.4      (1) prohibit the excluded program participant from enrolling in, becoming licensed,
8.5  receiving grant money from, or registering in any other program administered by the
8.6  commissioner; and
8.7      (2) disenroll or disqualify the excluded program participant from any other program
8.8  administered by the commissioner.
8.9      (e) The duration of a prohibition, disenrollment, revocation, suspension, or
8.10 disqualification under paragraph (c) must last for the longest applicable sanction or
8.11 disqualifying period in effect for the program participant permitted by state or federal law.
8.12 The duration of a prohibition, disenrollment, revocation, suspension, or disqualification
8.13 under paragraph (d) may last up until the longest applicable sanction or disqualifying period
8.14 in effect for the program participant as permitted by state or federal law.
8.15   Sec. 10. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision
8.16 to read:
8.17     Subd. 10. Notice. Within five days of taking an action against a program participant
8.18 under subdivision 9, paragraph (c) or (d), the commissioner must send notice of the action
8.19 to the program participant. The notice must state:
8.20     (1) the basis for the action;
8.21     (2) the effective date of the action;
8.22     (3) the right to appeal the action; and
8.23     (4) the requirements and procedures for reinstatement.
8.24   Sec. 11. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision
8.25 to read:
8.26     Subd. 11. Appeal. (a) Upon receipt of a notice under subdivision 10, a program
8.27 participant may request a contested case hearing, as defined in section 14.02, subdivision
8.28 3, by filing with the commissioner a written request of appeal. The appeal request must be
8.29 received by the commissioner no later than 30 days after the date the notification was mailed
8.30 to the program participant.
Sec. 11.  8
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9.1      (b) The appeal request must specify: (1) each disputed item and the reason for the dispute;
9.2  (2) the authority in statute or rule upon which the program participant relies for each disputed
9.3  item; (3) the name and address of the person or entity with whom contacts may be made
9.4  regarding the appeal; and (4) other information required by the commissioner.
9.5      (c) Unless timely and proper appeal is received by the commissioner, the action of the
9.6  commissioner shall be considered final and binding on the effective date of the action as
9.7  stated in the notice under subdivision 10, clause (2).
9.8    Sec. 12. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision
9.9  to read:
9.10     Subd. 12. Withholding of payments. (a) This subdivision does not authorize withholding
9.11 of payments that reduces, pauses, or otherwise interrupts state or federal aid to a school
9.12 district, charter school, cooperative unit as defined in section 123A.24, subdivision 2, or
9.13 any library, library system, or library district defined in section 134.001.
9.14     (b) Except as otherwise provided by state or federal law, the inspector general shall
9.15 notify and recommend to the commissioner to withhold payments to a program participant
9.16 in any program administered by the commissioner, to the extent permitted under federal
9.17 law, if the commissioner determines there is a credible allegation of fraud or theft for which
9.18 an investigation is pending for a program administered by the department, a Minnesota state
9.19 agency, or a federal agency.
9.20     (c) Allegations are considered credible when they have indicia of reliability and the
9.21 inspector general has reviewed the evidence and acts on a case-by-case basis. A credible
9.22 allegation of fraud is an allegation that has been verified by the commissioner from any
9.23 source, including but not limited to:
9.24     (1) fraud hotline complaints;
9.25     (2) claims data mining; and
9.26     (3) patterns identified through provider audits, civil false claims cases, and investigations.
9.27     (d) The commissioner must send notice of the withholding of payments within five days
9.28 of taking such action. The notice must: (1) state that payments are being withheld according
9.29 to this paragraph; (2) set forth the general allegations as to the reasons for the withholding
9.30 action, but need not disclose any specific information concerning an ongoing investigation;
9.31 (3) state that the withholding is for a temporary period and cite the circumstances under
9.32 which withholding will be terminated; and (4) inform the program participant of the right
9.33 to submit written evidence for consideration by the commissioner.
Sec. 12.  9
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10.1      (e) The withholding of payments shall not continue after the commissioner determines
10.2  there is insufficient evidence of fraud by the program participant or after legal proceedings
10.3  relating to the alleged fraud are completed, unless the commissioner has sent notice under
10.4  subdivision 5 of the intention to take an additional action related to the program participant's
10.5  participation in a program administered by the commissioner.
10.6      (f) The withholding of payments is a temporary action and shall not be subject to appeal
10.7  under this subdivision or chapter 14.
10.8    Sec. 13. Minnesota Statutes 2024, section 127A.21, is amended by adding a subdivision
10.9  to read:
10.10     Subd. 13. Program participant records retention. (a) The department must ensure
10.11 properly maintained records of external program participants and individuals that receive
10.12 money from the department.
10.13     (b) All program participants who received program money before August 1, 2026, must
10.14 retain records as part of the department program participant record retention laws, program
10.15 rules, or contracts.
10.16     (c) Starting August 1, 2026, all current department program participants must comply
10.17 with the record retention requirements in paragraph (d). Program participants must comply
10.18 at a minimum with this subdivision, in addition to other laws, program rules, or contracts
10.19 that may require additional records to be retained or require that records are retained for a
10.20 longer period of time.
10.21     (d) The following records must be maintained, controlled, and made immediately
10.22 accessible to the department, including the Office of the Inspector General. The records
10.23 must be organized and labeled to correspond to categories that make them easy to identify
10.24 so that they can be made available immediately upon request at the program participant's
10.25 place of business:
10.26     (1) payroll ledgers, canceled checks, bank deposit slips, budgets, reconciliation records,
10.27 tax records, and other accounting records;
10.28     (2) communication related to financial management or the failure to meet generally
10.29 accepted standards of fiscal management;
10.30     (3) daily attendance records, if required, or when the department program payment is
10.31 based on attendance;
10.32     (4) remittance payment records from the department program and any adjusted records;
 Sec. 13.  10
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11.1      (5) employee records identifying those persons currently employed by the program
11.2  participant or who have been employed or paid by at any time within the previous six years.
11.3  The records must include each employee's name, hourly and annual salary, qualifications,
11.4  position description, job title, and dates of employment. In addition, employee records must
11.5  be available and include the employee's time sheets, current or last known address of the
11.6  employee, documentation of background studies required pursuant to chapter 245C, and
11.7  documentation related to credentials and licenses;
11.8      (6) records of independent contractors, entities, or individuals paid using department
11.9  program money, including identifying information, contracts, payments, or other related
11.10 records; and
11.11     (7) records that are required to be maintained by law or contract by a program participant
11.12 when receiving department program money.
11.13     (e) A program participant must retain all records under paragraph (d) for at least six
11.14 years from the date department program money was dispersed to the program participant,
11.15 unless other laws, program rules, or contracts require records to be retained for a longer
11.16 period of time. In the event of an appealed case, the program participant must retain all
11.17 records for the duration of the appeal or six years, whichever is longer.
11.18     (f) A program participant who withdraws or is excluded from a department program
11.19 must retain records listed under paragraph (d) for at least six years and make them available
11.20 to the department on demand and notify the department of who is responsible for maintaining
11.21 the records, including full name, date of birth, and contact information.
11.22     (g) If the ownership of a program participant changes, the transferor, unless otherwise
11.23 provided by law or by written agreement with the transferee, is responsible for maintaining,
11.24 preserving, and upon request from the department, making available the records related to
11.25 the program participant that were generated before the date of the transfer. Any written
11.26 agreement affecting this provision must be held in the possession of the transferor and
11.27 transferee for six years after the agreement is fully executed. The executed agreement must
11.28 be shared with the department program within 30 days of execution of the transfer agreement.
11.29 The written agreement must be provided to the department including the Office of the
11.30 Inspector General immediately upon request.
11.31     (h) A program participant's use of electronic record keeping or electronic signatures is
11.32 governed by the Uniform Electronic Transactions Act under chapter 325L.
11.33     EFFECTIVE DATE. This section is effective the day following final enactment.
 Sec. 13.  11