Hennepin County ended a $2 million grant program created for businesses affected by federal immigration enforcement after more than 200 applications were flagged for possible fraud, while officials say tighter screening prevented fraudulent applicants from receiving taxpayer money.

By yourNEWS Media Newsroom.

Hennepin County, Minnesota, has ended a $2 million small-business grant program after officials encountered widespread suspected fraud among roughly 300 applications, including nonexistent businesses, inflated expenses and applications containing repeated language that officials said appeared to have been generated with artificial intelligence.

Only 82 applicants ultimately received grants, totaling $493,127, under the county’s Small Business Recovery Fund, which was created in March to assist businesses that reported financial losses connected to the federal immigration enforcement operation known as Operation Metro Surge. More than 200 applications were flagged for potential fraud during the review process, according to reporting on the program.

County officials say their screening procedures stopped taxpayer money from reaching applicants they determined were fraudulent or otherwise ineligible. The volume of questionable submissions, however, increased the time and expense required to administer the program and contributed to the decision to discontinue the grant effort.

Hennepin County Commissioner Jeffrey Lunde said investigators began encountering troubling patterns soon after applications arrived.

Applicants were required to document both expenses and lost revenue. Reviewers noticed identical or repeated passages appearing across multiple applications, prompting additional scrutiny that included research and in-person inspections of business locations.

Those reviews uncovered several kinds of suspected misconduct.

Some businesses named in applications did not exist, according to reporting based on county officials’ findings. In other cases, legitimate businesses were named in applications their owners had not submitted. Investigators also encountered actual businesses that allegedly inflated expenses, while numerous applications appeared to contain AI-generated material.

The program had been designed to provide grants ranging from $3,000 to $10,000 to locally owned, for-profit businesses with physical locations in Hennepin County that experienced significant revenue losses during Operation Metro Surge.

County guidelines required applicants to demonstrate at least a 30% decline in gross revenue between Dec. 1, 2025, and Feb. 28, 2026, compared with a comparable period. Grant money could be used for as much as two months of commercial rent or mortgage payments.

The Hennepin County Housing and Redevelopment Authority originally authorized $2,019,610 for the program on March 10, estimating that the funding could assist approximately 198 businesses. The county contracted with NextStage, a nonprofit community lender, to process applications, verify eligibility and distribute approved grants.

Instead, the county ultimately approved 82 grants.

Lunde said the attempted fraud demonstrates that government agencies must expect applicants seeking to exploit public programs and devote additional resources to detecting them.

“Clearly, fraud and people who want to commit it are still very active, as they do not fear the penalty. Thanks to county staff and our partner, we were able [to] thwart these efforts by devoting more time and effort to tighter oversight, in-person inspections and increased scrutiny. As the fraudsters continue their efforts, we need to ramp up our game as well. This is the new normal for all levels of government in Minnesota.”

County officials have emphasized that the controls worked in the sense that suspicious applications were identified before grant money was distributed to them.

The additional verification was nevertheless labor intensive and costly, according to the county. Lunde has said governments may need to accept higher administrative expenses for future grant programs if extensive verification is necessary to protect public money.

The Hennepin County Sheriff’s Office has requested the application materials and said it is beginning an investigation into the suspected fraud. Lunde has said he wants people who intentionally submitted fraudulent applications to face prosecution.

He has also raised the possibility that Minnesota lawmakers may need to examine whether existing statutes adequately address attempted fraud when applicants are caught before receiving government funds.

The county’s action comes amid heightened scrutiny of fraud involving publicly funded programs in Minnesota, though allegations involving other programs do not establish wrongdoing by applicants to the Hennepin County fund. The Small Business Recovery Fund’s applications are being reviewed on their own facts.

County officials have also redirected approximately $1.5 million that remained after the grant program ended.

On Aug. 13, the Hennepin County Housing and Redevelopment Authority approved reducing the NextStage grant agreement by $1,496,189. Of that amount, $1 million was designated to expand what the county describes as low-barrier small-business financing, while up to $496,189 was designated for financial, legal and marketing professional services intended to help businesses recover from the economic effects of the federal immigration enforcement operation.

Those services include assistance with lease negotiations, lenders and creditors, financial analysis and business planning. The county also authorized an agreement intended to encourage customer spending at businesses and commercial districts that experienced reduced foot traffic.

The county described those alternatives as longer-term strategies for supporting businesses rather than continuing the direct grant program that attracted the suspicious applications.

The original fund was established after county officials concluded that Operation Metro Surge had caused substantial economic disruption for some local businesses, particularly immigrant-owned businesses and those in commercial corridors affected by the federal enforcement activity.

The program opened for applications March 18 and closed March 25.

What was expected to distribute approximately $2 million directly to nearly 200 businesses instead produced fewer than half that number of approved recipients. The 82 businesses that passed the county’s review received a combined $493,127.

The remaining money will now be used through financing and professional-services programs rather than reopening the direct-grant process.

Meanwhile, the suspected fraudulent applications have moved from administrative screening to potential law-enforcement review, with the Sheriff’s Office requesting the records and county officials maintaining that the heightened scrutiny prevented the questionable applicants from obtaining public funds.

Original article