An investigation by the U.S. Department of Health and Human Services (HHS) has revealed that Minnesota’s child care agency has fallen short in verifying attendance records and addressing fraud tips, according to a letter reviewed by The Post.
The HHS Administration for Children and Families criticized Minnesota’s approach to managing federal funds allocated for child care. The agency highlighted that the state had not implemented sufficient controls to validate county-issued payments to providers, a process meant to be based on the actual attendance of children.
This lack of oversight means that child care centers could receive funding from counties, which would then bill the state and, by extension, the federal government without regularly checking billed hours against actual attendance records.
The letter, penned by Laurie Todd-Smith, Deputy Assistant Secretary for Early Childhood Development at HHS, noted that Minnesota’s Department of Children, Youth and Families is hampered by limited staff and resources, which restricts their ability to thoroughly investigate fraud tips and conduct proactive probes.
Currently, the Minnesota Child Care Assistance Program employs only four investigators tasked with handling all potential fraud cases.
Furthermore, Todd-Smith pointed out that Minnesota has not shown evidence of implementing the necessary program integrity training for providers statewide. As a result, child care center operators merely need to attest that they have read the requirements to qualify for funding.
And Todd-Smith told Minnesota DCYF Commissioner Tikki Brown that HHS observed no “mandatory, statewide process to obtain, review and act on county level single audits” during their Jan. 22-23 oversight visit.
President Trump has claimed as much as $19 billion in federal funds may have been taken by Minnesota fraudsters, as his administration seeks to crack down on “loopholes” that allowed for taxpayer “waste, fraud and abuse.”
The Trump administration’s focus followed a viral video from YouTuber Nick Shirley that alleged nearly a dozen day cares in the state had taken $111 million in federal funding — but seemingly had no children in attendance.
Minnesota youth services got $184,928,081 in taxpayer funding in fiscal year 2025 that HHS officials also warned in a Jan. 15 letter could be withheld if the state’s Department of Children, Youth and Families didn’t hand over attendance and inspection records in 60 days.
The Biden administration had previously relaxed a federal rule for “attendance-based billing” in April 2024, meaning that states no longer had to provide the records in order to be reimbursed for child care expenses.
In total, HHS ACF provided more than $91.8 billion between 2021 and 2024 from its Child Care Development Fund (CCDF), one of the largest federal block grant programs, which provides taxpayer money for child care in states, US territories and tribes, departmental data show.
Vice President JD Vance announced last Wednesday that the Trump administration would also be withholding another $259.5 million in Medicaid funds, citing fraud concerns — and gave Minnesota Gov. Tim Walz only 60 days to impose a “corrective action plan.”
Walz — who bowed out of his re-election race for governor in January — will appear this week on Capitol Hill with Minnesota Attorney General Keith Ellison for a hearing with the House Oversight Committee to answer questions about the fraud scandal.
Past federal watchdog audits have already uncovered tens of millions of dollars in erroneous payments to child care centers in the state.
In fiscal year 2012, Minnesota made more than $16 million in “improper payments” — around one-fifth of all program dollars — but state officials didn’t disqualify any centers from getting future federal funds or refer violators to law enforcement, according to an HHS Office of Inspector General report.
State officials also never “[c]hecked for multiple providers that are billing for the same child at the same time” or conducted “on site” visits to centers, per the HHS OIG report.
The audit cited Minnesota as one of only nine states that exceeded a 10% threshold for the improper payments.
At the time of the 2016 report, HHS OIG demanded “onsite visits” to ensure future compliance.
Reps for Minnesota DCYF did not immediately respond to a request for comment.
