Legislative Auditor opens investigation after Fox 9 reports of daycare fraud

The Office of the Legislative Auditor is opening an investigation in regards to fraud within Minnesota's daycare system.

The non-partisan watchdog of state government will be looking at the extent of the fraud, how it happened and how it can be prevented going forward.

"This is an important issue, it has been uncovered by your story, this is of great concern to the public and legislators and we will respond," said Legislative Auditor, James Nobles.

The Fox 9 Investigators discovered what appears to be rampant fraud in the state program that provides millions of dollars to low income families so they can afford childcare.

A series of Fox 9 reports are based on multiple government sources with direct knowledge of the schemes. 

They estimate as much as a $100 million a year is being stolen by shady daycare center operators who are overbilling the state.

Nobles' office will decide in a few days what the scope of its investigation will be but most likely it will focus on what went wrong within the Minnesota Department of Human Services (DHS) to allow this to happen.

The investigation could take months. 

Ten daycare centers are currently under active investigation by DHS, most are owned by Somali immigrants.

Sources within government and the community told Fox 9 these frauds are very sophisticated with the centers paying kickbacks to parents who enroll their children.

State and federal agents have tracked some of the money overseas and they believe when it arrives, in places like Somalia, some of the cash is likely being skimmed by terrorist groups.

Scott Stillman is a former DHS Computer Forensic Expert who worked daycare fraud cases at DHS.

Last year, he sent emails to his supervisors warning them that some of this money was going to countries connected to entities known to fund terrorists.


Chairperson of the Senate Human Services Committee, Jim Abler (R) Anoka, is calling for lawmakers to pass legislation to set up a new state agency to oversee fraud investigations that involve the DHS and the Department of Health.

"It's all about the fraud, it’s not Islamophobia, its fraud phobia," said Abler.

If the legislation passes, the goal is to have that new oversight agency up and running by July 2019.