Minnesota has recently come under fire due to significant issues with child care fraud, particularly involving local Somali communities, leading to millions of taxpayer dollars potentially being misappropriated. However, this isn’t a new issue; whistleblowers have been raising alarms about the scope of this problem for almost a decade.
Despite these warnings, tangible progress or accountability seems to have been lacking.
Back in May 2018, KMSP-TV aired a revealing report about “massive daycare fraud,” based on statements from whistleblower Scott Stillman. He previously worked for the Minnesota Department of Human Services and had communicated concerns to his superiors via emails as early as March 2017.
Stillman, a senior executive overseeing the state’s digital forensics lab for eight years, relayed his worries to the Department of Homeland Security (DHS). He suspected that the misappropriated taxpayer funds might be used against civilians or military personnel.
His firm stance was clear, stating, “Everyone who did this must be arrested.”
The fraud allegations are tied to the Child Care Assistance Program, which was established by the federal government in 1990 to assist low-income parents with childcare costs, enabling them to maintain employment or further their education.
Stillman urged the federal government to initiate an independent investigation into the daycare and Medicaid programs, claiming that the scale of fraud could exceed $100 million annually. He also suggested that some of the money might have been funneled to Somalia to fund al-Shabaab, a known terrorist organization.
This alarming situation prompted local lawmakers to hold hearings that same month, where Stillman testified, asserting, “This is not a Minnesota issue. It started here, but our investigation has uncovered individuals training others in these activities, and it’s spreading to other states.”
He maintained that a federal inquiry would likely expose the complicity of other parties benefiting from these fraudulent activities.
Reviews by the Minnesota Legislative Audit Office in 2019, following Stillman’s assertions, stated they couldn’t verify the claimed $100 million in annual fraud, nor could they give a solid estimate. However, they suspected that the extent of fraud was indeed larger than the $5 to $6 million that prosecutors proved in a few select cases.
Auditors mentioned their inability to back Stillman’s allegations regarding the flow of funds to terrorist groups. They acknowledged concerns among federal regulators about funds from the U.S. being used to support terrorist organizations in countries, including Somalia, due to remittances sent back home by immigrants.
The audit report references an email from Jay Swanson, the former manager of CCAP’s investigations, indicating a belief that at least 50% of the $217 million paid to childcare centers in 2017 might be fraudulent. He attributed much of the fraud to various schemes and oversight failures. These included significant overcharging by childcare centers and schemes involving “shell” centers established solely to defraud the program.
Swanson communicated that labeling Stillman’s claims as false may indicate a lack of awareness or might aim to misdirect attention from a serious issue.
However, the then-Inspector General, Carolyn Hamm, challenged these claims in a December 2018 legislative hearing, stating, “The assertion that 50% of CCAP’s funds are fraudulently disbursed is not credible.”
The 2019 audit concluded that while the CCAP investigation department had sounded alarms regarding rampant fraud, real progress against it was nonexistent. The department reported seeing fraudulent childcare centers operating at a rate that exceeded the closure of existing ones.
Minnesota DHS officials acknowledged the existence of fraud in the CCAP but argued against Stillman’s claim of $100 million, stating it was not a dependable figure. They expressed concern over fraud and said they were actively pursuing cases, but not at the claimed levels. For context, the 2017 funding for the program stood at $248.2 million.
Following the 2019 report’s publication, various residents and childcare centers in Minnesota faced charges relating to CCAP fraud. In an attempt to address the issue, the state transferred management of the CCAP from the Minnesota Department of Human Services to the Department of Children, Youth, and Families. Attempts to comment on the fraud issue directly were redirected without substantial responses.
The serious nature of this longstanding fraud issue has recently garnered national attention, further intensified by journalist Nick Shirley’s investigative reporting in December, which led to criticisms of the state’s Democratic leadership and exposed systemic oversight failures beyond just CCAP.
This week, the Minnesota Legislative Audit Office published a new performance audit, revealing significant grant-making issues in the DHS’s Office of Behavioral Health Services. The assessment aimed at understanding the internal controls regarding financial supervision of grants highlighted that the department failed to meet most requirements and lacked sufficient controls over grant funds.
The audit revealed shocking discrepancies, including nearly $300,000 in grant rebates, $915,000 disbursed for work preceding contract completeness, and $2.5 million allocated without a competitive bidding process.
While the DHS and BHA staff cooperated with the audit, there were instances of them providing documents that appeared to be retroactive or created after the audit began.
In response to the audit, DHS’s interim secretary acknowledged his dismay upon finding evidence suggesting inaccurate representations to auditors and emphasized the importance of ongoing compliance within the department.
Critics have reacted sharply to the findings. Eric Daugherty from Florida’s Voice stated that the audit confirms record fabrication and cover-ups, calling for immediate action, including possible resignation of Governor Tim Walz, who has distanced himself from his re-election bid amid ongoing fraud investigations.
Whether these reports will lead to broader criminal investigations remains uncertain.
