The Department of Health and Human Services announced Tuesday that it is freezing all federal child care funding to Minnesota. The decision follows expanding investigations into alleged fraud involving daycare centers across the state.
“We have frozen all child care payments to the state of Minnesota,” HHS Deputy Secretary Jim O’Neill wrote on X. “We have turned off the money spigot and we are finding the fraud.”
The pause applies to payments issued through the Administration for Children and Families. Federal officials say Minnesota allegedly failed to stop scammers and fake daycare centers from accessing taxpayer funds.
“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. “Today we have taken three actions against the blatant fraud that appears to be rampant in Minnesota and across the country.”
Minnesota receives about $185 million each year in federal child care funding. The money is intended to support roughly 19,000 children statewide.
“That money should be helping 19,000 American children including toddlers and infants,” Assistant Secretary Alex Adams said in O’Neill’s X post. “Any dollar stolen by fraudsters is stolen from those children.”
Adams said he spoke directly with Minnesota’s director of child care services. He said she could not confirm whether the suspected fraud was isolated or spread across the state.
“She couldn’t tell me with confidence whether those allegations of fraud are isolated,” Adams said. “Or whether there was fraud stretching statewide.”
HHS is now requiring photo evidence and documentation before approving any future ACF payments. The department has also launched a national fraud reporting hotline and email portal at childcare.gov.
O’Neill has requested that Minnesota Gov. Tim Walz authorize comprehensive audits of daycare centers flagged by investigators. The audits would review attendance records, licenses, complaints, investigations, and inspection reports.
“Anyone who is involved in perpetrating this fraud against the American people should expect to be prosecuted to the fullest extent of the law,” O’Neill said.
Federal enforcement activity increased this week. Homeland Security Secretary Kristi Noem said federal agents entered Minnesota on Monday and went door to door at suspected fraud sites.
Authorities estimate roughly $9 billion has been lost through fraudulent claims in Minnesota’s federal assistance programs. Nearly 100 people have been charged in daycare-related fraud cases since 2022.
Attorney General Pam Bondi highlighted several high-profile prosecutions. She pointed to the federally funded child nutrition program Feeding Our Future.
“Few, if any, were fed,” Bondi said. The program claimed to provide millions of meals to children.
Prosecutors said hundreds of millions of taxpayer dollars were instead sent overseas. The leader of the scheme was sentenced to 28 years in prison. He was also ordered to pay nearly $48 million in restitution.
Another defendant received a 10-year prison sentence. That individual was also ordered to repay nearly $48 million. Other defendants attempted to bribe jurors by delivering bags of cash to their homes.
Bondi credited independent journalist Nick Shirley for drawing attention to the alleged fraud. She said his videos showed daycare facilities that appeared non-operational despite receiving federal funds.
The child care funding freeze follows another federal move against Minnesota. The Small Business Administration announced it is also pausing annual funding to the state.
That action is tied to an investigation into alleged COVID-era Paycheck Protection Program fraud. HHS officials say additional enforcement actions could follow as investigations continue.