Fraud fallout: Local politicos comment on statewide child care fraud scandal

State-funded child care services across Minnesota are getting a long, hard look amid fallout from a fraud scandal that first broke early last year that's gradually coming to fruition.

Carrie Ruud
Sen. Carrie Ruud

State-funded child care services across Minnesota are getting a long, hard look amid fallout from a fraud scandal that first broke early last year that's gradually coming to fruition.

In May 2018, it came to light that widespread fraud was being perpetrated in the Minnesota Child Care Assistance Program. At the time, it was speculated fraud could be as high as $100 million or more annually and even involve funds transferred to Somali terrorist organizations abroad.

"Investigators in this unit do not believe, despite the number of cases investigated thus far, that any real progress has been made regarding CCAP (Child Care Assistance Program) fraud," an Aug. 24 report by internal Minnesota Department of Human Services investigators states. "Investigators believe that current internal controls and statutes are not stringent enough to make reasonable progress in reducing the level of fraud in this program."

Subsequent investigations pinned fraudulent activities as significantly lower than $100 million annually, with a low-end estimate of $5 million to $6 million and more "improper" allocations of funds to be determined. In addition, there is no evidence of program funds finding their way to terrorist organizations.

Originally established by the federal government in 1990, the Child Care Assistance Program was intended to provide monetary support for low-income and vulnerable families so they can afford child care and are, thus, free to work, participate in education/training, and gain independence from public assistance. Secondarily, the program is intended to enrich and improve child care across Minnesota.


According to the legislative auditor's report dated April 10, state investigators established two conclusions from their analysis of the program:

• The Minnesota Department of Human Services internal operations are insufficient to prevent, detect and investigate fraud in the assistance program.

• The department and local human services agencies around the state need to step up efforts to identify and respond to fraud.

Furthermore-while detailing extensively the inherent complexity and difficulties with child care programs of this scope and caliber-the report stated DHS, the Child Care Assistance Program and affiliated state agencies failed to perform five points of operation. These include:

• DHS and county agencies did not sufficiently utilize independent or external data sources to determine if a person was eligible for assistance program aid.

• DHS had "weak processes" to verify if a child care provider's billings matched the extent, nature and quality of child care provided to its charges.

• The state's centralized automated system-Minnesota Electronic Child Care-wasn't property outfitted for some tasks and lacked key controls to identify errors or inhibit, track and recover improper payments.

• There were not sufficient controls or safeguards in the process for licensing child care providers.


• DHS did not adequately identify and analyze risks of fraud in the assistance program and did not feature a sufficient framework for statewide investigations.

One primary area of weakness is the process to evaluate and authorize potential recipients of the program, whether families or care providers. These are steps, auditors and consultants advised, that should be ramped up and subjected to greater scrutiny, whether that's via more stringent documentation, oversight by social workers, an electronic attendance system, and more.

The program served 30,000 children with $283 million (with about $254 million going directly to providers and children) in state and federal funds for fiscal year 2018, according to DHS.

In the east-central region of the state-which includes Crow Wing, Cass, Todd, Morrison, Mille Lacs and Wadena counties-the Child Care Assistance Program operates in conjunction with 673 child care providers to the tune of up to 13,646 slots (or, enrolled children) and $12,629,000.

Area legislators respond

Local elected officials-including state Reps. Josh Heintzeman, R-Nisswa, and Dale Lueck, R-Aitkin, as well as state Sens. Paul Gazelka, R-Nisswa, and Carrie Ruud, R-Breezy Point-gave their thoughts on fraud in the Child Care Assistance Program.

State Rep. John Poston, R-Lake Shore, did not return repeated requests for comment. Heintzeman declined to conduct a phone interview and opted to communicate via email.

• Heintzeman pointed a finger at the DFL, noting they've been so far unwilling to entertain bills in the Minnesota House to address the issue.


"I have been receiving literally hundreds of correspondences from constituents and individuals from around the state," Heintzeman wrote, adding they are very upset. "This issue is very serious but we have yet to see any bills, dealing with this problem, allowed to be heard. Fraud is an issue that both sides of the aisle should take seriously yet we're actually seeing legislation proposed by Democrats that provides a path for those that have admitted to falsifying documents, a path back to receiving taxpayer dollars."

• Ruud called for Inspector General Carolyn Ham (who heads fraud prevention for DHS) to step down, based on her performance revealed by the investigation and her actions during the course of the investigation. In the auditor's report, investigators noted there was substantial "distrust" between Ham and conclusions from prior investigations into assistant program fraud, as well as a lack of "independence" from DHS management.

"I think that the Inspector General Carolyn Ham needs to resign," Ruud said. "I think that she is not effective. I think it's clear that she can't work with the investigators. I think she's done a horrible job. I think the administration needs to replace her with someone with the focus of the taxpayer dollars. I think she's been an abject failure in that."

• Gazelka noted it's difficult to pin down just how much fraud has taken place, but promised the state Legislature-and, particularly the Minnesota Senate, where he's the majority leader at this time-will look to pursue the issue and revamp involved state agencies so they're serving the best interests of Minnesota voters, taxpayers and families.

"The governor has taken some action. Legislatively, we will as well," Gazelka said. "The Health and Human Services budget is growing at a rate something like 18%. So, any area we can address for waste, fraud and abuse, we will because we have to."

• Lueck said, unfortunately, there's an established pattern of failures by government agencies in similar capacities-noting, during his interview, similar allegations have been leveled at providers with adult in-home care.

However, he noted, child care is a penultimate issue for many Minnesota families and their ability to work and contribute. As such, he said, Gov. Tim Walz needs to buckle down, the state Legislature needs to actively combat fraud and there needs to be criminal investigations into the issue.

"There's no question in my mind that there's a significant amount of fraud there. There needs to be criminal investigations," Lueck said. "The whole child care industry is absolutely critical. There can be literally no excuse to defraud the government and child care."

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