Minnesota Governor Tim Walz is facing mounting criticism as his administration becomes entangled in yet another fraud controversy — this time involving a state housing program funded by Medicaid. The scrutiny comes just one day after Walz officially launched his re-election campaign for a third term, casting an unwelcome shadow over his bid for continued leadership.

The program in question, known as Housing Stabilization Services, was designed to help vulnerable Minnesotans — including the elderly, disabled, and those at risk of homelessness — secure stable housing through state and federal funding. When it began in 2017, the program’s budget stood at a modest $2.6 million. By 2024, that number had ballooned to more than $107 million, raising concerns among auditors and lawmakers about oversight and accountability.

The situation came to a head earlier this month when state officials announced the program’s sudden termination following what they described as “credible allegations of fraud.” According to Minnesota’s Department of Human Services (DHS), the agency overseeing the program, dozens of organizations allegedly submitted falsified invoices and misrepresented services provided — all while collecting millions of taxpayer dollars.

Shireen Gandhi, the interim commissioner of DHS, formally requested federal approval to shut down the program, a step seen as necessary to prevent further losses. Meanwhile, DHS Inspector General James Clark told state legislators that payments to 115 providers have been suspended while investigations continue. Clark added that his office is taking “a more aggressive anti-fraud posture” following public outcry over the mishandling of similar cases in recent years.

Critics of Governor Walz have seized on the scandal, arguing that his administration has consistently failed to detect or prevent widespread fraud in programs under its watch. Representative Kristin Robbins (R–Maple Grove), who chairs the Minnesota House Fraud Prevention Committee and is also running for governor, said Walz’s administration only took action after KARE 11’s investigative reporting exposed the problem. “They were asleep at the wheel,” Robbins said. “Once again, this administration is reacting to headlines instead of preventing fraud before it happens.”

Robbins also dismissed Walz’s recently announced executive order creating an Inspector General Coordinating Council, calling it a “political distraction” that lacks independence. “If the governor were serious about rooting out fraud, he’d empower independent watchdogs — not more bureaucracy controlled by his own office,” she added.

Walz, however, defended his record during a press briefing, emphasizing the reforms his administration has already implemented to tighten oversight. He cited new initiatives, including interagency data-sharing systems designed to flag suspicious billing and a newly appointed inspector general charged with improving transparency. “We have zero tolerance for fraud,” Walz said. “Abuse of taxpayer dollars takes resources away from those who need them most, and that’s unacceptable.”

Despite those assurances, the controversy has revived memories of past scandals that plagued the state during Walz’s tenure. The Feeding Our Future fraud case, one of the largest pandemic-era financial scandals in the country, saw more than $250 million in federal nutrition funds stolen through fake invoices and shell companies. Minnesota also continues to grapple with allegations of fraudulent Medicaid billing, prompting federal oversight reviews.

Political analysts say the timing couldn’t be worse for Walz, who has framed his re-election campaign around themes of competence, transparency, and integrity in government. The opposition has already made it clear that the new scandal will be a centerpiece of their attacks in the upcoming race.

Meanwhile, the Housing Stabilization Services program is expected to officially end on October 20, pending federal approval. DHS says it is working to transition affected clients to alternative programs to prevent service interruptions.

As investigations continue, the fallout from the scandal threatens to deepen public mistrust in state oversight. For Walz, who has long prided himself on efficient governance, the challenge will be convincing voters that his administration is capable of reforming a system increasingly associated with waste and abuse — before the ballot box delivers its verdict.