The Trump administration has halted all federal childcare payments to Minnesota and ordered a sweeping audit of the state’s daycare system, escalating federal pressure as allegations of massive, long-running fraud engulf Minnesota’s human services programs.
Deputy Health and Human Services Secretary Jim O’Neill announced the funding freeze Tuesday in a public statement on X, saying the federal government had “turned off the money spigot” after determining that Minnesota had routed millions of taxpayer dollars to fraudulent childcare providers over more than a decade. The move marks one of the most aggressive federal interventions in a state-run childcare program in recent years.
“We have frozen all child care payments to the state of Minnesota,” O’Neill wrote, adding that the decision followed mounting evidence that federal funds were being systematically exploited by sham daycare operations.
The action came days after a widely shared investigative video by YouTuber Nick Shirley drew national attention to dozens of Minneapolis-area childcare centers that appeared to be closed, vacant or non-operational despite receiving millions of dollars in public funding. O’Neill cited the video directly, saying federal officials had identified the facilities featured and were demanding a “comprehensive audit” of their operations.
Under the administration’s directive, Minnesota Gov. Tim Walz is being pressed to conduct a detailed review of attendance records, licensing documentation, complaints, inspection reports and prior investigations tied to the centers flagged by federal authorities. The Department of Health and Human Services also announced new safeguards requiring states to provide receipts or photographic evidence before receiving childcare reimbursements through the Administration for Children and Families.
In parallel, HHS has activated what it calls its “Defend the Spend” oversight system and launched a national fraud-reporting hotline and email portal through childcare.gov, inviting parents, providers and members of the public to submit tips. O’Neill said the goal is to close gaps that have allowed fraudulent operators to exploit federal programs not only in Minnesota but potentially nationwide.
Federal prosecutors have already confirmed at least $1 billion in fraud linked to Minnesota human services programs, with 92 people charged so far, according to the U.S. attorney’s office. Authorities have warned the total losses could climb as high as $9 billion as investigations continue. Court records show that a significant number of those charged are Somali immigrants, a detail prosecutors have stressed does not diminish the broader systemic failures that allowed the schemes to flourish.
The scandal has revived scrutiny of Minnesota’s oversight mechanisms, particularly after earlier cases tied to pandemic-era relief programs. The Daily Wire previously reported that the state continued paying an accused fraud suspect to operate assisted living facilities while that individual awaited trial in what federal officials have described as the largest COVID-related fraud case in U.S. history. First Assistant U.S. Attorney Joe Thompson has said at least 14 Medicaid services in Minnesota are considered “high risk” for fraud.
Shirley, who has appeared on Fox News to discuss his findings, said many of the daycare and learning centers he visited had no children present and showed no signs of daily operation. He described properties with untouched snow piles and shuttered buildings still drawing public funds, calling the activity “obvious” and questioning how it escaped state oversight for so long.
Gov. Walz addressed the controversy Tuesday, acknowledging that Minnesota had been “taken advantage of” by fraudsters motivated by greed rather than the welfare of children and vulnerable residents. However, he pushed back against federal criticism, arguing that the state has spent years tightening controls, referring cases to law enforcement and shutting down high-risk programs. In a social media post, Walz blamed President Donald Trump, saying federal policies had allowed convicted fraudsters to be released from prison.
The standoff highlights a growing clash between Washington and state governments over accountability for federal funds, particularly as the Trump administration signals a tougher posture on domestic spending oversight. By freezing childcare payments outright, federal officials are betting that aggressive enforcement will force structural reforms, even as advocates warn that disruptions could ripple through legitimate childcare providers and families who rely on subsidies.
For Minnesota, the immediate challenge will be restoring federal confidence while keeping childcare services afloat. For the administration, the episode serves as a test case for its broader pledge to root out waste and fraud across social programs — a strategy likely to intensify scrutiny of other states as auditors follow the money trail.
NewYorkPost/DailyWire
