HHS’s Bold Action Against Child Care Funding Abuse
The Department of Health and Human Services (HHS) is taking decisive steps to address widespread abuse of federal child care funds. Under Secretary Robert F. Kennedy Jr., HHS has repealed several regulations from the previous administration. These rules have been blamed for facilitating massive fraud, especially involving daycare centers run by Somali providers in Minnesota. The announcement comes amid ongoing investigations into serious misuse of taxpayer dollars.
During a recent statement, Deputy Secretary Jim O’Neill emphasized the urgency of the situation. “Governor Tim Walz has allowed resources to be wasted on wide-scale fraud,” he said. O’Neill noted that every dollar lost through fraud is taken from families and children who genuinely need these services.
The newly instituted rules focus on three problematic areas of federal child care funding:
- States can no longer issue payments to providers before services are delivered.
- Federal reimbursements will now rely on verified attendance rather than simply enrollment numbers.
- The requirement for states to prepay for guaranteed child care spots has been eliminated.
“Payments should serve families, not fund schemes,” O’Neill stated, reinforcing the need for integrity in the child care system.
This crackdown follows a significant investigation triggered by compelling reports and a viral video by independent journalist Nick Shirley. The video exposed a shocking pattern of fraudulent claims, particularly among Somali-run daycare centers in Minnesota. It revealed eerie, nearly empty facilities that were nonetheless billing the state for supposed full-time care.
In Minnesota, estimates of fraud related to child care assistance have surpassed $250 million. Furthermore, the scheme involved an alarming $1.9 million in misuse of federal aid tied to pandemic relief programs. The problems largely stemmed from a funding framework established during the Biden administration that favored quick transfers to daycare providers. This rapidly changed the landscape, making it easier for dishonest claims based on unverifiable attendance records to proliferate.
With few checks and balances in place, providers could receive monthly payments based purely on enrollment figures, regardless of actual attendance. States had been instructed to issue payments in advance—a move that stripped away vital financial controls.
The HHS’s response seeks to remedy these flaws. The new policy mandates that providers must document real attendance before receiving payments. This change aims to provide clearer accountability and reduce the opportunity for fraud. The shift from advance payments to a reimbursement model is expected to cut fraud exposure by over 60%, according to the HHS Office of Inspector General.
Critics of the earlier regulatory approach had warned that the system’s reliance on self-reported data would invite corruption, particularly in states like Minnesota and Washington. Those dire predictions have now been confirmed through ongoing audits and investigations, some of which remain sealed in federal court.
In Washington state, scrutiny intensified after Sen. Lisa Wellman (D) introduced legislation aimed at restricting access to child care providers’ identifying information. The bill has been criticized for potentially shielding unscrupulous providers from accountability. “We need to investigate this… make sure that [the funds] are being spent on child care, on kids,” remarked Washington GOP Chair Jim Walsh, emphasizing the need for oversight.
Despite the pressing concerns surrounding child care funding fraud, Governor Tim Walz in Minnesota has not initiated any public inquiries into the depth of the problem, despite calls for a comprehensive audit. A senior HHS official noted that Walz’s policies had created a “fraud magnet” in the state.
Some daycare facilities involved in the fraud were linked to organized networks perpetrating identity manipulation and falsifying enrollment numbers to collect payments. In many instances, these centers operated out of private homes or abandoned storefronts.
In response to these challenges, O’Neill announced a new federal fraud hotline and email tip line aimed specifically at reporting abuse in child care subsidy programs. He indicated that further enforcement actions may be forthcoming. “We have already turned off the money spigot,” he said. “Now we are finding the fraud.”
The new HHS policy has stirred reactions among state governments. Many Republican-led states have commended the rollback of what they see as “reckless and unsustainable” funding policies, expressing commitment to revise eligibility and billing practices in line with federal guidelines.
While no specific number has been given regarding the states or providers currently under investigation, sources indicate that at least four additional states—Michigan, Oregon, and New York—are facing similar scrutiny over billing irregularities.
The feedback from Congress has been polarized. Conservative lawmakers have praised Secretary Kennedy’s actions. One House member expressed support online, stating, “I VOTED FOR THIS!” alongside O’Neill’s comments on the importance of accountability.
Conversely, progressive groups and some state officials warn that the repeal may have unintended consequences. The concern is that moving away from prepayment models could inadvertently destabilize legitimate providers and reduce availability in underserved communities. Such providers especially rely on these funds to cover operational costs.
O’Neill dismissed these fears, arguing, “Legitimate providers will succeed in a system that rewards care, not claims.”
The changes implemented by HHS signal a significant shift in approach under Secretary Kennedy. He has acted quickly to dismantle what he describes as “junk science” policies left over from the previous administration. Under his leadership, the emphasis has clearly moved toward stricter enforcement and robust fraud prevention measures.
Families dependent on child care assistance may face longer processing times due to tighter enrollment screenings. However, O’Neill remains optimistic, asserting that the long-term outcome will be a system that effectively serves real families. “We’re not protecting criminals,” he insisted. “We’re protecting children.”
The amount spent on federal child care subsidies exceeds $9 billion annually, and even a 1% fraud rate translates to a significant loss for taxpayers. The measures introduced this week may mark a crucial step in finally safeguarding these vital resources.
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