Committee report: Child Care Assistance Program

Childcare Assistance Program Hearing Date: Tuesday April 28, 20267

Background:

The Child Care Assistance Program (CCAP) was one of the first sources of widespread fraud allegations in Minnesota social services, with the earliest reports starting in 2011. In 2013, the Department of Human Services (DHS) created a Childcare Provider Investigative Unit composed of professionals with a background in law enforcement and agents from the Bureau of Criminal Apprehension (BCA) to investigate criminal activity within the CCAP program. This unit conducted several investigations which led to several successful prosecutions of high profile cases of CCAP fraud.

From 2017 through 2019, after the retiremenst DHS’ Inspector General and Deputy Inspector General, investigators recognized that the new leadership in the Office of Inspector General was often undermining or dismissing the unit’s reports of widespread fraud in the CCAP program. The agency ultimately closed the childcare provider investigation unit opting instead for administrative investigations for “over payments” rather than aggressively investigating criminal activity. This new approach was adopted by the Department of Children, Youth and Families when they took over responsibility for the program in the spring of 2025.

In January of 2025, new reports emerged of 62 active investigations by DHS into childcare fraud.8 In response, then-DHS Commissioner Jodi Harpstead said, “there are more rumors of fraud than actual fraud” in a Senate hearing the next week.9

In February of 2025, the Committee held its first hearing on CCAP fraud to understand how the issue had persisted for over a decade.10 There had been significant reporting and action on childcare fraud when the first prosecutions began, and it was concerning that this issue was re- emerging as a significant vector of fraud.

Just prior to the hearing, the Committee provided DHS a list of 72 childcare centers that each received over $1 million in CCAP payments and also had significant license violations. Our staff had visited several of these childcare centers in the fall of 2024 and had found, in many cases, no evidence that they were in operation – windows blacked out, no children, no playgrounds, etc. DHS, who then had jurisdiction over CCAP, assured us that they were handling the 62 investigations expeditiously and that any remaining concerns would be addressed when the responsibility for CCAP was transferred to the new agency established by the Walz Aministration, the Dept. of Children, Families (DCYF) in the spring of 2025.

7 YouTube video, House Fraud Prevention and State Agency Oversight Policy Committee 4/28/26. 8 Jay Kolls, “62 Investigations Underway Involving Federally-Funded Minnesota Child Care Centers,” KSTP, Jan. 28, 2025. 9 KARE 11 Investigates, “‘Flying Blind’: State Agency Missed or Ignored Repeated Housing Fraud Warnings,” Sept. 11, 2025. 10 YouTube video, House Fraud Prevention and State Agency Oversight Policy Committee 2/24/26.

In December 2025 new allegations of CCAP fraud gained national attention and brought increased demand for accountability. The Committee held a second hearing on the issue on April 28, 2026, to uncover why the Walz Administration had shifted away from criminal investigations in CCAP fraud, what role the responsible agencies had in allegations of suppressing investigations, and to what extent the red flags observed by criminal investigators at the time still persist today.

Note: Both DHS and Governor Walz were invited to attend to answer questions regarding action taken by the executive branch to combat CCAP fraud, but both declined to join.

Finding: DHS officials impeded criminal investigations and reporting to the Office of Legislative Auditor (OLA)

The Committee heard testimony from Jay Swanson, the former Supervisor of the DHS Childcare Provider Investigation Unit. Swanson described the success the unit had in uncovering fraud within the CCAP program, and the extensive nature of illegal activity.

In 2017, 42 of the 50 highest paid centers had red flags for fraud. Swanson described regular credible allegations of fraud flowing into the unit, including: • A parent benefitting from CCAP reported the center their child attended stopped paying the agreed-upon monthly kickback for the parent enrolling their child at the center. • A co-owner of a childcare center reported he did not receive the fraudulently obtained proceeds he was entitled to from the other owner. • A fire department attempted multiple times to conduct a fire safety inspection of a CCAP-funded child care center, but there were never staff or children present so they could not conduct the inspection.

DHS’ Childcare Provider Investigation Unit would conduct professional investigations performed by their staff of seasoned former law enforcement officers. Based on tips, they would research the provider and its owners and surveil sites when credible accusations of fraud were made. From 2014- 2018, the unit worked on several high-profile CCAP fraud cases, which caught widespread public attention in the media. In 2018 the Legislature directed the OLA to investigate CCAP fraud. As part of their investigation, the OLA asked Swanson several questions about the unit’s findings.

Swanson testified that senior leadership at DHS directed him to send his responses to the OLA’s questions to agency leadership, rather than directly to the OLA. Swanson stated that he complied with this request, and after sending his response to agency leadership, a senior DHS official approached Swanson in his office, “angry and nearly yelling,” while making demands that Swanson remove certain paragraphs from his responses. Swanson claims he told the DHS official that he believed what was being asked of him was illegal, and that he was obligated under state law to fully answer the OLA’s questions.

According to Swanson, that official later informed him that the agency had sent his unredacted response to the OLA’s questions, and that he was told “you better be ready for the “blank” storm

that's coming your way.” Swanson’s email to the OLA was later published in its entirety as Appendix B in the OLA’s 2019 special review of CCAP fraud allegations.11

Swanson’s email to the OLA describes extensive fraud in the top paid childcare centers, the inability of DHS to prevent fraud, a criminal enterprise that utilizes recurring locations and schemes to maximize billing with all CCAP funded clients, recycling new fraudulent companies with similar owners through the system, and much more.

Swanson claims that following the OLA’s investigation, DHS leadership retaliated against and undermined the criminal investigations unit in a number of ways including: • Hiring a consultant with no experience in fraud investigations to label the claims made by Swanson’s team as “unreliable.” • The PFM Consulting report initially corroborated Swanson’s team’s estimate of $100 million in fraud with their own assessment of $105 million in CCAP fraud. However, after a DHS “review” of the report, the estimated fraud was reduced by $33 million, which also reduced the percentage of fraudulent centers from roughly 10% to 7%, a significant decrease. • False, derogatory information placed on supervisor performance reviews. • Implementing a Continuous Improvement Program (CIP) for the unit that required DEI and cultural sensitivity training (thinly veiled accusations of racism against the unit). This CIP resulted in agency staff continuously demeaning the unit and filling their schedules with group meetings and assignments that took time away from investigations. • Taking away the authority of the unit to select cases to initial investigate. Instead, the unit was now tasked with looking for “overpayments” and a `new “Overpayments Committee” was formed to review “overpayment” cases and decide if payments should be recouped or of any administrative sanctions would be imposed. • Ending case prioritization based on the amount of CCAP funds obtained, forcing the unit to investigate smaller centers less likely to be committing high levels of fraud. • Preventing investigators from contacting BCA without permission from a DHS official and removing BCA agents from the DHS office building.

Following the alleged retaliation and sabotage of the unit, Swanson submitted his resignation in June of 2019.

Mr. Swanson stated to the Committee: “I can’t tell you how shocked we were to come to the Department of Human Services and learn after a few years that not only was the theft of untold millions of dollars tolerated, but those who tried to stop it would be subjected to the wrath of high-ranking department officials.”

Not long after his departure, the unit was shut down completely, with criminal investigations replaced with administrative investigations for “overpayments.” Vice Chair Anderson noted that data presented by DCYF in the hearing showed this change resulted a substantial drop in criminal referrals and a substantial increase in administrative referrals. She further noted this

11 Office of the Legislative Auditor, Child Care Assistance Program: Assessment of Fraud Allegations, March 13, 2019.

hearing was taking place on the same day the FBI was raiding 22 sites around the metro – clearly our federal partners believe criminal investigations are still warranted.

Swanson explained that while administrative sanctions have a role in public programs, eliminating the threat of prosecution emboldens criminals who will shift ownership of a fraudulent business among family members and friends if an owner faces a sanction.

Note: from “DCYF CCAP Presentation” available in committee documents.12

Finding: The fraud and oversight failures in CCAP under DHS transferred over to DCYF without being addressed.

The same red flags present among the top CCAP-funded childcare providers observed by Swanson and his team until 2019 are still present among current providers. Rep. Schultz brought up an example of a currently active childcare center, which was also the top CCAP recipient for 2025, according to a data request response provided to the Committee by DCYF.13

Per this data, the childcare center with the most CCAP funding in 2025 received $4,177,747 for the year. With a capacity of 137 children, assuming the center maintained maximum enrollment for the entire year and every single child was eligible for CCAP, that would equate to nearly $30,500 per child for the year. The only way this could be achieved would require the center to maintain maximum capacity for the whole year entirely with CCAP eligible children, and every child would have to be billed as an infant for the maximum weekly rate for the entire year to achieve a number close to their total reimbursements.

Swanson responded, “that was the model they were using” and went on to describe how this example fits the model of continuous growth in CCAP billing he witnessed among suspect providers. He stated that the amount of growth in billing did not surprise him.

12 4/28/2026 Committee Document, “DCYF CCAP Presentation.” 13 5/12/2026 Committee Document “CCAP Data Table.”

Rep. Schultz followed up by asking: “Did leadership lack the legal tools to stop fraud, or did they fail to use the tools that they already had?”

Mr. Swanson: “By mid-2017, the administration, the leadership at DHS, there was no focus on stopping CCAP fraud - the focus was on stopping the people that were investigating CCAP fraud.”

After hearing Swanson’s testimony, Chair Robbins asked DCYF Inspector General Keys: "Would you want to reinstate a criminal investigation unit in DCYF for childcare?”

Inspector General Keys: “Madam Chair, no.” He continued to explain the agency’s stance of that administrative sanctions are important and should be completely separate from any criminal investigations, which would be handled by the Bureau of Criminal Apprehension.

Finding: The Office of Legislative Auditor Reports in 2019 failed to fully investigate the claims of Jay Swanson, enabling the agency and politicians to downplay his concerns and prevent hearings on the fraud.

Early in the Walz Administration, the Office of Legislative Auditor (OLA) issued two reports – one on reports of fraud in the CCAP program in March 201914 and one on the failure of internal controls at DHS in the CCAP program in April 201915.

The April report mentioned the $100 million estimate in CCAP fraud and allegation of cash being sent overseas to fund terrorism. However, in both cases, then Legislative Auditor Jim Nobles downplayed the figures. Instead of fully investigating these assertions, Auditor Nobles simply chose to say the amount of fraud could be anywhere between the $5-6 million prosecuted and the $100 million figure:

OLA Report, Page 5: “We did not find evidence to substantiate the allegation that the level of CCAP fraud in Minnesota is $100 million annually. On the other hand, we believe the level of CCAP fraud is more than the $5 to $6 million that prosecutors have been able to prove, but we cannot offer a reliable estimate of how much fraud exists in the program.”16

Based on the response to Rep. Mary Franson’s data request, we know that the consulting firm DHS had hired to investigate Mr. Swanson’s claims initially placed the fraud estimate at $105 million. After DHS had reviewed their report, however, the consulting firm, PFM, reduced the amount by $33.4 million.

Summary of Franson Data Request Response: “A comparison of the original draft of the PFM report on CCAP and the final draft - produced after input was offered by DHS officials - reveals

14 Office of the Legislative Auditor, Child Care Assistance Program: Assessment of Fraud Allegations, Special Review, Mar. 2019. 15 Office of the Legislative Auditor, Child Care Assistance Program: Assessment of Internal Controls, Special Review, Apr. 10, 2019. 16 Office of the Legislative Auditor, Child Care Assistance Program: Assessment of Fraud Allegations, Special Review, Mar. 2019.

some striking differences. It appears that after DHS was allowed to review the revised draft, DHS convinced PFM to downplay the amount of money going to fraudulent providers. When comparing the revised draft of the PFM Report (12/8/18) to the final version of the report (1/14/19), PFM - without explanation - has reduced by $33.4M the total amount of CCAP funding “over the past five years” to centers that have closed as a result of or during an investigation, to a total of $71.6M ($105M listed in draft p4 - $33.4M reduction = $71.6M listed in final version p6). It follows that the proportion of program funding spent on fraudulent centers is also reduced, without explanation, in the final report when compared to the revised draft (7% vs 10%).”17

In an opinion piece in October 2025, the now retired Legislative Auditor Jim Nobles, asserted that the Walz Administration and the Legislature were at fault for not taking his reports seriously.18 He also cited a conversation with former Speaker Melissa Hortman who told him that some members of the DFL Caucus “felt that OLA reports were subjecting human service programs to too much criticism, particularly programs administered by Somali community organizations,”19 and that “House committee chairs had been instructed not to give OLA reports about fraud any public hearings.”20

Whistleblowers, including Jay Swanson and Scott Stillman, who had headed up the forensic analysis lab at DHS, testified that this effort to minimize their investigative findings and end the criminal investigations caused tremendous pressure on employees and allowed CCAP fraud to continue basically unhindered.

Republican Rep. Mary Franson tried to highlight the findings and raise concerns, but she was routinely rebuffed and criticized as a “racist.”21 She also did an extensive data request that provided detailed information on the Dayton and Walz Administration’s efforts to cover up the allegations of fraud and work with the Minnesota Minority Childcare Association to block legislative reforms.22

Finding: Several individuals connected to the subsequent Feeding Our Future food nutrition scam also operate CCAP funded childcare centers. DCYF still refuses to take action.

The prosecution of individuals involved in the Feeding Our Future fraud scheme has revealed that nearly all of the top food sites were fraudulent. Among the 323 food sites sponsored by Feeding Our Future, 69 were identified by the Committee as also being CCAP-funded

17 Responsive Data (2018.12.17 Part (1)) (Fulfills Franson’s 12/17 ask for all data related to “PFM Group Consulting, Inc.’s Work on Behalf of DHS.”) (p1734-1748) 18 Jim Nobles, “Former Legislative Auditor: Is the Walz Administration Finally Awake About Fraud?,” Minnesota Star Tribune, Oct. 22, 2025. 19 Ibid. 20 Ibid. 21 Anthony Gockowski, “Email Appears to Show DHS Wanted to Cut Check to Child Care Center Connected to ‘Taliban Official,’” Alpha News, Dec. 3, 2019. 22 5/5/2026 committee document “DHS Data Request 2019.”

childcare centers. Among these centers, 31 still had active childcare licenses at the time of the hearing.23

While the federal government continues to investigate the Feeding Our Future sites for possible prosecution, DCYF and DHS have opted to not use their administrative powers to prevent individuals with known connections to Feeding Our Future defendants from billing CCAP for the last four years.

At the time of the hearing, the most recent individual charged in Feeding Our Future scheme was Fahima Mahamud, the first childcare center operator to be charged in the scheme. Mahamud enrolled her childcare center, Future Leaders Early Learning Center, in the federal food program through Feeding Our Future.24 Despite the connection to Feeding Our Future being known since the beginning of the investigation in January of 2022, and DHS assuring us they had looked at all Feeding our Future connections to other programs, both DHS and DCYF allowed Mahamud to continue billing CCAP uninhibited nearly until her arrest in 2026.

In 2023 Future Leaders Early Learning Center received $2,451,711 in CCAP reimbursements. In 2024, the center was the top CCAP recipient in the state receiving $3,418,825. In early 2025, the Committee recommended DCYF to investigate the top CCAP recipients, with Future Leaders Early Learning Center ranked highest on a list provided by the Committee. The agency seemingly ignored this suggestion and allowed Mahamud’s center to bill for another $3,800,169 that year as the second highest CCAP recipient of 2025, with her access to taxpayer funds only ending shortly before her arrest.

Chair Robbins questioned the agency about their practice of permitting childcare centers with connections to Feeding Our Future to continue accessing taxpayer funds.

Chair Robbins: “How have you reviewed these sites, what guardrails are on them? I think most Minnesotans would find that troubling.”

DCYF Inspector General Keys responded with a broad statement describing how the agency responds to tips and information, including criminal investigations by other agencies, but did not indicate that any of these particular providers faced any kind of additional scrutiny.

Despite the agency insisting that their administrative approach to program integrity is as effective (or more) in stopping fraud than the use of criminal investigations, the Committee has continued to observe federal law enforcement taking action in criminal investigations before DCYF takes administrative action against a provider.

Similar to Fahima Mahamud, who was free to bill CCAP nearly until her arrest, three of the nine childcare centers raided by federal law enforcement the morning of the hearing were also Feeding Our Future food sites.25 26

23 See page (Insert page number of FOF table) 24 FOX 9, “Feeding Our Future: 79th person charged,” February 19, 2026. 25 KSTP, “Fraud raids: The Minnesota day care and autism centers that were searched,” 5 Eyewitness News 26 5/12/2026 Committee Document “Feeding Our Future Claims Summary by Site.”

Finding: DCYF undermined allegations of fraud and overstated their efforts to stop fraud.

Oversight of CCAP switched from DHS to DCYF in April 2025.

On December 29th, 2025, DCYF Commissioner Tikki Brown responded to new allegations of CCAP fraud. In the video, which was played in the hearing, she attempted to rebut allegations of fraud by stating that one of the centers in question, Quality Learning Center, had permanently closed the previous week. However, that same day, the parking lot was packed, and the owner of Quality Learning Center was on camera speaking to reporters claiming the center was legitimate and active.27 Commissioner Brown seemed to backtrack on her previous statement when questioned by members of the Committee.

In Committee she admitted she had been in error when she first announced that Quality Learning Center had closed. More astonishingly, on the day of the hearing and the day the FBI was raiding the site, she stated that DCYF had not found any fraud at the Quality Learning Center and that their decision to close on January 6, 2026, was voluntary.

As part of her comments on December 29th, Commissioner Brown also stated that all of the childcare centers facing allegations had been visited by staff and found to be operating as expected with children present. Despite DCYF finding these centers to be legitimate, the owner of another center, Fahima Mahamed, was arrested a couple months later while trying to flee the country for her role in the Feeding Our Future scheme. These facts raise serious questions about the effectiveness of the agency’s site visits and whether DCYF downplayed the allegations of fraud.

In response to the law enforcement raids on several childcare centers the morning of the hearing, DCYF issued a statement saying, “Today's law enforcement actions are a result of state, county, and federal agencies working together to root out fraud and hold bad actors accountable. Each plays a role in protecting taxpayer dollars and we're seeing the strength of that collaborative working relationship in action.”28 Governor Walz also posted to social media, “today’s raids by state and federal law enforcement happened because our state agencies caught and reported it. That’s how the system is supposed to work.”29

In committee, Rep. Schultz pointed out a response from FBI Director Kash Patel, contradicting claims made by the Walz Administration about contributing to the law enforcement activities. Director Patel posted, “this FBI and DOJ with our DHS (Department of Homeland Security) partners drafted and executed every search warrant today. But go ahead and take credit for our work while we smoke out the fraud plaguing Minnesota under your Governorship.”30

27 KARE 11, “State commissioner responds to viral YouTuber video about Somali daycare fraud in Minneapolis,” December 29, 2025. 28 KAALTV, “Minnesota DCYF, DHS release statements applauding state and federal collaboration in day care raids,” April 28, 2026. 29 Governor Tim Walz, X post, April 28, 2026. 30 FBI Director Kash Patel, X post, April 28, 2026.

Summary:

Childcare (CCAP) fraud has been an ongoing problem in Minnesota since allegations first surfaced in 2011. In 2013 DHS formed a new criminal investigation unit under the leadership of Jay Swanson to investigate fraud as a criminal matter and make referrals for prosecution. This unit was having great success when, in mid-2017, a change in the Office of Inspector General at DHS changed the culture and commitment to fighting fraud.

Under this new leadership, the unit was undermined and pressured to suppress their findings in a report to the OLA. In the early months of the Walz Administration, the OLA issued two reports on CCAP Fraud that were quite damning.

Rather than double-down on investigating and prosecuting fraud, the new Walz Administration, under the same OIG, disbanded the criminal investigative unit, banned the BCA from DHS, and prohibited the criminal investigators from talking to their counterparts at the BCA without supervisor approval.

The criminal investigators’ estimate of fraud at the time was about $100 million, which was verified by a consulting firm ($105 million) until DHS forced them to revise their estimate down by $33 million. Other allegations that the money was being sent overseas to support terrorism, directly or indirectly, were also downplayed, despite two criminal convictions and forensic evidence uncovered by Scott Stillman.

It is clear that the Dayton and Walz Administrations knew about the childcare fraud and tried to cover it up. If they had been aggressive in stopping fraud in CCAP, it would not have grown into the worst fraud scandal in state history, known as Feeding Our Future.

It is clear that the Dayton and Walz Administrations knew about the childcare fraud and tried to cover it up. If they had been aggressive in stopping fraud in CCAP, it would not have grown into the worst fraud scandal in state history, known as Feeding Our Future.

Unfortunately, their malfeasance in the CCAP fraud scandal established the pattern for the other fraud scandals that would emerge by:

them.

O’Malley in his report,31 and prioritizing increasing program/provider participation over fiduciary duties and program effectiveness.

31 Tim O’Malley, Roadmap to Program Integrity and Fraud Prevention: Strengthening Minnesota’s Stewardship of Public Resources, Feb. 23, 2026.