Minneapolis schools wrestle with fiscal fallout after withholding almost $3M from employee health care fund

The latest financial scandal to rock Minneapolis Public Schools (MPS) stems not from a budget shortfall or teachers’ union strikes, but health care.

Even though a district employee health care account was “supposed to be walled off to prevent raiding for other uses,” MPS failed to report withholding almost $3 million from it incrementally starting in 2024, according to a report obtained by the Minnesota Reformer.

“The school district’s financial maneuver, which has not previously been reported, risked creating a shortfall in the health care account, known as voluntary employee benefits association, or VEBA, under the IRS tax code,” Melissa Whitler wrote for the Reformer.

Withheld funds included employee and employer contributions to health care premiums, according to Whitler.

“It’s unclear whether the withholding violated any laws or collective bargaining agreements with district unions.”

Although the money ended up being restored to the fund, “a high-profile termination and resignation” followed and caused the district to “spend heavily on an outside consultant,” Whitler explained.

“The investigators can’t say whether or not the withheld funds were moved outside of district accounts, despite hiring a forensic accountant to assist with the investigation. The forensic accountant could only conclude that the withheld funds were not moved out of district accounts via wire transfer, though that leaves open the possibility the money was moved by other means.”

Employees in the district’s finance department started subtracting 5% from the monthly amount to be deposited into the health care trust account, starting Nov. 24, 2024, according to investigators.

“District employees outside of the finance department became aware of the 5% reduction in June 2025,” Whitler wrote. “Superintendent Lisa Sayles-Adams was first made aware of what was happening with withheld contributions at the end of August 2025, according to a district spokeswoman. The school board was notified on Sept. 29, 2025.”

‘Lack of internal controls’

Researchers cited a “lack of internal controls” for allowing the mismanagement to go undetected for so long, according to Whitler.

Since 2015, external auditors had warned of the potential for “accounting irregularities,” criticizing the district’s decision to reduce its accounting and finance staff without properly separating duties.

“Segregation of duties is important to prevent fraud and errors in record keeping,” Whitler observed. “Typically, separate people are responsible for authorizing payments; making payments from district accounts; and recording transactions in district accounts.”

However, MPS had failed to separate those functions.

“The district’s shorthanded finance staff have been improperly blending these duties, according to the external audits.”

As previously reported by The Lion, the district is one of several nationwide to draw criticism for its failure to adequately monitor fiscal spending and prevent budget deficits.