The Trump administration has frozen all federal child care payments to the state of Minnesota in response to what officials are calling one of the largest fraud scandals in U.S. history, much of it allegedly centered around fraudulent daycare and autism centers in the Minneapolis area.
In a video posted Tuesday night on X, Deputy Health and Human Services Secretary Jim O’Neill and Administration for Children & Families Assistant Secretary Alex Adams made the announcement, citing serious allegations of taxpayer dollars being funneled to sham operations posing as childcare providers.
“You have probably read the serious allegations that the state of Minnesota has funneled millions of taxpayer dollars to fraudulent daycares across Minnesota over the past decade,” O’Neill said. “We have turned off the money spigot and we are finding the fraud.”
Officials said HHS is taking three aggressive steps:
Activated the “Defend the Spend” system — a federal-level safeguard that now requires justification and receipt or photo evidence before any funds are released to the state.
Launched a sweeping audit — prompted by independent journalist Nick Shirley’s viral exposé, the department has identified individuals in his videos and demanded records from implicated daycare centers, including attendance logs, licenses, prior investigations, and inspection data.
Opened a public fraud hotline and email tip line — to allow parents, providers, and whistleblowers to report suspicious activity directly to HHS investigators.
Shirley’s work, which has attracted millions of views, highlights ghost daycare centers in Minneapolis with no children inside, yet still collecting millions in taxpayer funding. In one example, snow-covered transportation vans hadn’t moved in months — a red flag for centers allegedly in daily operation.
Federal prosecutors now estimate more than $9 billion in welfare-related fraud has occurred in Minnesota, most of it under Democrat Governor Tim Walz’s administration. The accused fraudsters are said to have rerouted funds through fake nonprofits, and in some cases, funneled money back to Somalia and even terrorist groups like Al-Shabaab.
Even as the scandal deepens, reports emerged that the state was still paying an accused fraudster to operate assisted living homes while awaiting trial for his role in the country’s largest COVID relief scam.
According to First Assistant U.S. Attorney Joe Thompson, 14 Medicaid services in Minnesota are now considered high-risk for fraud.
Despite the mountain of evidence, Governor Walz deflected blame, accusing President Trump of enabling the problem. “Trump keeps letting fraudsters out of prison,” Walz said on Tuesday, while also admitting that the state had been “taken advantage of” by those driven by greed.
For O’Neill and HHS, that excuse doesn’t fly. “This isn’t just about one state. It’s about restoring faith in how taxpayer dollars are spent — and we’re starting with Minnesota,” O’Neill said.
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