'Zero guardrails': Inside the alleged fraud at DHS housing stabilization program

[MUSIC PLAYING] CHRIS FARRELL: Our top story today-- the state of Minnesota announced it is shutting down its Housing Stabilization Services program after allegations of widespread fraud. The Department of Human Services Temporary Commissioner, Shireen Gandhi, said that their own data analysis has shown that this program does not have the necessary controls to stop bad actors. The cancelation follows the in-depth investigative reporting on alleged fraud from Carol Evans, AJ Lagoe. He joins me now with the latest on the story. AJ, I appreciate you taking the time.

AJ LAGOE: Pleasure to join you, Chris.

CHRIS FARRELL: All right. So just to clarify, let's just start at the beginning, I guess. What exactly are Housing Stabilization Services? I mean, what do they do?

AJ LAGOE: Yeah. I think one common misconception is that this Housing Stabilization Services, or HSS, and I'll call it that, just for brevity, actually provides housing. And it doesn't do that. What it does is it provides, in essence, counselors to help elderly and disabled people, including those with substance use disorder, find and sustain housing.

So I like to think about it as someone helping, say, hey, look, here's housing options for justice-involved individuals that might have a record, which some landlords wouldn't want to deal with, or you've got evictions on your record. Here's places that'll work with you. And once they find them a home, or housing, then it's, hey, let's make sure you're paying your rent this month. It's that touch base and that counselor to help people get back on a stable path. That's what the program is supposed to be.

CHRIS FARRELL: OK. So when this program went into place, it was projected, this was going to cost about $2.6 million, right? I mean, that was the figure that was out there.

AJ LAGOE: Yeah. That was in 2020, when this program was launched and passed by the legislature, that it was going to cost, yeah, about $2.6 million a year. It would help about 8,000 individuals a year. And that figure has clearly exploded.

CHRIS FARRELL: OK. So we go from a projection of $2.6 million to it used nearly $100 million last year. So how did that happen?

AJ LAGOE: Now, that is the million-dollar question there, Chris.

CHRIS FARRELL: Exactly. Well, that's why-- and that's why we brought you onto the show.

AJ LAGOE: Yeah, it did. It jumped up to-- the latest data I've seen was that it was over $104 million last year. And because some of these providers, they get a year to bill from when the service was provided. So this number keeps changing. If you're wondering why, hey, I heard it was $90 million. Then you said it was $100 million. And then people were saying $107 million. It's a constantly evolving number. It gets bigger as the year goes on.

There has been an explosion of companies that were launched-- the feds are now calling them fly-by-night companies-- since this HSS program was passed by the legislature. All these businesses, for-profit businesses, that didn't exist before, suddenly came online and very, very quickly started billing as if they were providing HSS services.

CHRIS FARRELL: Wow. And what made this program attractive to these fly-by-night operators? I mean, they seemed to coalesce pretty quickly around this program.

AJ LAGOE: Well, as we now know, there were almost zero guardrails on this program. It's not licensed. So unlike, say, an addiction treatment center that has DHS licensure examinations every year, where somebody's coming out, and checking out the facility, and making sure folks are dotting their I's and crossing their T's, at least that level of oversight, there isn't that in this program because it's unlicensed.

So to set up the program, to set up and become a provider, is very, very easy. And there just hasn't been the guardrails or the checks and balances to make sure that these companies that are claiming to provide all these services are actually legitimate.

CHRIS FARRELL: So what's the state of the federal investigation right now?

AJ LAGOE: Right now, the feds have served search warrants on a few programs, five. They raided eight or nine houses and businesses a couple weeks ago. I think four of the five are the ones that we've been reporting on. And they seized computers. And they seized records. And sources tell me they seized more than $100,000 that day in straight cash.

And that's where we know the federal investigation sits at this point. Search warrants have been served. We know there's this big federal investigation going into a number of programs. But there are no charges at this point. Federal grand jury proceedings are done in secret. So we don't know if there is a grand jury that is investigating this as of yet. But I think that would be the natural conclusion, is that if there is not, there will be a federal grand jury. And they're looking at bringing criminal charges.

CHRIS FARRELL: So are other social service providers getting in touch with you and talking to you about this program, the flaws in the program?

AJ LAGOE: Almost from the beginning of our investigation. And we first started looking into this late last year. You have providers who have just said, this program is flawed. It has problems. It has great intentions. It's designed to meet a need. But the rollout was deeply flawed. And we're hearing now from some that are certainly saying they're just heartbroken to see the program just disbanded and done away with, because it absolutely is helping vulnerable people, just not nearly the number of people that is being claimed and that taxpayers are footing the bill for.

CHRIS FARRELL: So do you know what's going to happen to the people who have been using the services? I mean, legitimately using these services.

AJ LAGOE: That is a big question that we don't really have an answer for right now. If the service has been used appropriately, a lot of the current clients will most likely already be in some form of housing. But they're going to be losing that trusted partner, who's helping them make sure that things stay on track. And that is going to be a real problem.

And there's a number of other changes going on right now in the state as far as sober housing, extra regulations. And with addiction recovery places not paying for them, there's a lot of sober homes that are just going away. So housing-- I think we could be looking at a huge housing crisis for vulnerable people as this year plays out.

CHRIS FARRELL: And where are the lawmakers? How are they addressing this issue, or are they addressing this issue?

AJ LAGOE: Well, I can tell you that lawmakers actually were pretty quick to jump in on this one. Senator Jim Abeler, a Republican from Anoka, and Senator John Hoffman, who we all know was the target of an assassination a few months ago now, they were working extremely hard on this very quickly and managed to pass some reforms during the special session that the legislature had that would increase some oversight on the program. Clients would actually have to sign off that they received the services.

Some of that just really went into effect on July 1. So there's some of those things that are in place and just getting launched. And then you have the ongoing investigation. And now DHS is shutting down the program and says they want to relaunch it after they figure out how to have proper controls to stop fraud.

Of course, we have all seen and heard that there are a number of Republican lawmakers that have really been calling out the governor and DHS over this fraud. They're calling for federal audits of DHS to see who knew what, when. Why was this allowed to go on for so long?

CHRIS FARRELL: So, tapping into your experience, do you think Minnesota has a real fraud problem here? I mean, this is coming right after all the revelations about Feeding Our Future.

AJ LAGOE: As a journalist, you tend to keep your opinions to yourself.

CHRIS FARRELL: Right. I know.

AJ LAGOE: But in this case, I think it's very clear and obvious that Minnesota has a fraud problem. I mean, this program alone was over $100 million last year. And it was estimated just four or five years ago to be $2.6 million a year. Like, if that doesn't tell you that there's a problem, I don't know what does.

CHRIS FARRELL: And I have a feeling that that is your Full Employment Act.

AJ LAGOE: Right now, I feel like all I'm doing is Medicaid fraud all the time these days.

CHRIS FARRELL: Well, thank you so much for your work. And really appreciate, again, your taking your time to talk to our listeners.

AJ LAGOE: Thanks, Chris. Have a great day.

CHRIS FARRELL: That was KARE 11 Investigative Reporter AJ Lagoe.