Minnesota's legislative auditor will investigate alleged fraud in child-care subsidy program

The Minnesota legislative auditor is launching an investigation into allegations that some child care providers are defrauding the state's publicly funded child-subsidy program with excess billings.

The auditor's office, an independent, nonpartisan arm of the Legislature, will explore the scope of the alleged fraud and the internal controls in the Minnesota Department of Human Services (DHS), which oversees the child-subsidy program.

"This is very serious," Legislative Auditor James Nobles said in an interview Friday. "The allegation is that the fraud is much bigger than previously thought, and that money … derived from the fraud is being used for international terrorism, which gets people's attention."

Nobles is responding to a television news report suggesting widespread fraud in the Child Care Assistance Program, or CCAP, which subsidizes the child-care expenses of nearly 30,000 low-income children per month.

The Fox 9 report alleged that Minnesota refugee families are taking suitcases full of cash on flights from the Minneapolis-St. Paul International Airport to Somalia and Middle Eastern nations where terrorist groups are active.

Nobles said his investigation will focus on the day-care fraud allegations — not whether public money wound up in the hands of terrorist groups, which he said falls within the jurisdiction of federal authorities.

Since the TV report appeared Sunday, Nobles said, several legislators contacted his office and asked him to investigate. He said the investigation could begin as early as next month and could take several months.

Acting Human Services Commissioner Chuck Johnson said the agency welcomed the review and would work closely with Nobles and his staff. Fraud in the CCAP is particularly egregious, "because in addition to exploitation of taxpayer funds, it harms the children and families the program is intended to help," he said in a written statement Friday.

DHS has intensified its investigations of child-care fraud, based in part on reports that providers were exploiting parents and their children to overbill the state. Since forming a special child-care fraud unit in 2012, the agency has closed 13 child-care centers while producing six felony convictions and court orders for more than $4.6 million in restitution, the agency said. Currently, the agency has 10 active investigations into alleged fraud.

Republican legislators last week moved with great speed on the issue, introducing legislation that would enable DHS to close child-care businesses that participate in the subsidy program but fail to cooperate with investigators. It would also create new criminal and civil penalties for anyone who transferred fraudulently obtained money to countries on the U.S. State Department's travel ban list, among other provisions.

In addition, Sens. Jim Abeler, R-Anoka, and Michelle Benson, R-Ham Lake, have proposed creating a new state agency to investigate fraud in social service programs. They envision combining oversight functions currently housed at several different agencies, including the DHS Inspector General and the Department of Health.

At the same time, some DFL lawmakers and Somali-American leaders have questioned the rush to pass major reforms in the final days of the legislative session, largely based on a single news report.

"The narrative has suddenly become that there is a massive failure of our oversight system," said Sen. Matt Klein, DFL-Mendota Heights. "That really seems like a premature conclusion — and beneath the dignity of the Senate."

Jaylani Hussein, executive director of CAIR Minnesota, a Muslim civil rights group, and members of the Somali-American business community lashed out at lawmakers Friday, accusing some Republicans of using "fearful, anti-Muslim rhetoric" for political gain at a news conference.

They pointed out that state regulators and federal law enforcement officials have yet to establish any link between Minnesota child-care operators and overseas terrorist groups. They also noted that traveling Somalis often have no choice but to carry cash through airports because they are traveling to countries that do not have functioning, regulated banking systems.

"This is a cynical attempt to use African immigrant and Muslim communities as a political football in the final days of the legislative session," Hussein said. "It's easy to claim that Muslims are dishonest and dangerous, but it's something we have to push back against."

Abeler, who called an emergency hearing this week to explore the issue, insisted that legislators' motives were grounded in a sincere effort to root out fraud in public programs. "It's all about the fraud," he said. "It's not Islamophobia. It's fraudophobia."