Minnesota investigators say child care centers accused of fraud are operating normally as governor drops re-election bid

A child colours with a crayon. (Photo by Pixabay via Pexels)

It was the viral video seen ‘round the world.

The 43-minute video, posted to YouTube the day after Christmas by a 23-year-old conservative content creator, claimed with little evidence Somali-run child care centres in Minnesota were fraudulently taking funding meant to provide child care for low-income families. The video, boosted by Vice President JD Vance and tech billionaire Elon Musk, quickly racked up millions of views.

The impact was swift: DHS and the FBI ramped up their presence in the state, and federal funding for child care in the entire state was frozen. Monday, Gov. Tim Walz announced he is dropping his re-election campaign as the controversy continues.

“In September, I announced that I would run for a historic third term as Minnesota’s governor. And I have every confidence that, if I gave it my all, I would succeed in that effort,” Walz said in a release Monday morning.

“But as I reflected on this moment with my family and my team over the holidays, I came to the conclusion that I can’t give a political campaign my all,” he said. “Every minute I spend defending my own political interests would be a minute I can’t spend defending the people of Minnesota against the criminals who prey on our generosity and the cynics who prey on our differences.”

The governor – who will be speaking at a news conference at 11 a.m. local time Monday (noon ET) – had faced calls to resign from Republican lawmakers in the state, CNN affiliate WCCO reported, amid mounting criticism over the recent allegations of fraud and a lack of any on-camera response from Walz since the video was released.

Investigators last week visited all of the child care centres accused of fraud in the video, and all were operating as expected, state officials say.

The state’s initial findings cast doubt on the claims of fraud articulated in the viral video. Still, investigations into alleged wrongdoing are ongoing.

Minnesota officials have until Friday to provide the Trump administration with information about providers and parents who receive federal funds for child care, according to a bulletin sent Friday by the state Department of Children, Youth, and Families to child care providers and shared with CNN.

The Trump administration’s demands are the latest step in a yearslong saga that started with investigations into theft of government funds in Minnesota under the Biden administration.

Here’s what we know about the investigations and what comes next as crucial funding for child care hangs in the balance for thousands of Minnesota families.

Funds frozen as Friday deadline looms

On December 30, Department of Health and Human Services Deputy Secretary Jim O’Neill announced the agency was freezing all child care payments to Minnesota. The state typically receives about US$185 million annually in federal child care funding, supporting care for 19,000 children.

“Funds will be released only when states prove they are being spent legitimately,” he added. He said he had demanded Walz provide a “comprehensive audit” of the centres featured in the video.

The proof must be shared with the government by Friday, according to the email sent by state officials to child care providers. The email said HHS has requested specific details, including the total amount of Child Care and Development Fund payments received by five child care centres and administrative data – like names and social security numbers – for all recipients of federal money. The fund is the main source of federal support for child care and includes the state Child Care Assistance Program, which Nick Shirley, the creator of the viral video, alleged was being exploited in Minnesota.

An HHS spokesperson confirmed the Friday deadline to CNN.

Investigators with the Minnesota Department of Children, Youth, and Families conducted “on-site compliance checks” at all the centres shown in the video, the department said in a news release. “Children were present at all sites except for one – that site, was not yet open for families for the day when inspectors arrived,” the release stated. Investigators “gathered evidence and initiated further review,” according to the release.

The department has ongoing investigations into four of the centres mentioned in the video. In total across the state, the department “has 55 open investigations involving providers receiving CCAP funding,” according to the release.

Asked whether the state’s early findings would affect the funding freeze, HHS Deputy Assistant Secretary for Media Relations Andrew Nixon told CNN, “The onus is on the state to provide additional verification, and until they do so, HHS will not allow the state to draw down their matching funds for the CCDF program.”

In the meantime, thousands of Minnesota families who rely on federal funding for child care are in limbo. It is unclear how quickly funding could be restored if the state meets the Friday deadline, although the bulletin sent to child care providers says the government will provide the state more information Monday.

And if Minnesota’s responses are not “satisfactory,” the federal government “says it may withhold CCDF and impose other penalties,” according to the email sent to child care providers.

Child care fraud has been on state authorities’ radar for more than a decade before the viral video. A 2014 report from the Office of Inspector General identified “a pattern of child care fraud activities that involves deception and exploitation.” A few years ago, the state implemented the “Early and Often” program, which involves multiple unscheduled visits to newly licensed centres to ensure they are operating properly.

DHS and FBI also investigating Minnesota fraud

Along with HHS, DHS has dispatched Homeland Security Investigations and ICE officers to the state, posting videos of agents visiting what they call potential fraud sites.

DHS did not directly address CNN’s questions about how the state’s findings that the centres in the viral video were operating normally would affect its investigations, but sent CNN statements from several officials.

“Right now in Minneapolis, Homeland Security Investigations are on the ground conducting a large scale investigation on fraudulent daycare and healthcare centres, as well as other rampant fraud,” read a statement from Assistant Secretary Tricia McLaughlin.

It is unclear if any arrests have been made for fraud or other crimes in DHS’ latest crackdown, which comes after an ICE operation targeting Somalis in the Twin Cities was announced in December. CNN has asked DHS for more information.

It is notable DHS — the overarching federal department handling immigration and national security — is central to the investigations. Shirley claimed in the viral video child care centres run by Somalis in Minnesota were committing fraud but did not provide the identities of the owners of most of the centres. The vast majority of the state’s Somali population, which numbers around 108,000 in total, are U.S. citizens.

FBI Director Kash Patel also said the bureau had already sent additional resources to Minnesota even “before the public conversation escalated online.” Patel pledged to stamp out fraud, saying in a post on X, “Fraud that steals from taxpayers and robs vulnerable children will remain a top FBI priority in Minnesota and nationwide.”

CNN has reached out to the FBI for information about whether the state’s initial findings have affected its investigations or whether any arrests have been made.

Governor, lawmakers called to testify before House Oversight Committee

Just ahead of the Friday deadline, Minnesota lawmakers will testify before the Republican-led U.S. House Oversight Committee. The Wednesday hearing will be centred around “fraud and misuse of federal funds” and feature testimony from three members of the Minnesota House of Representatives: Kristin Robbins, Walter Hudson and Marion Rarick.

In a separate hearing February 10, Walz and Minnesota Attorney General Keith Ellison are called to appear before the committee’s investigative panel.

“Minnesota Governor Tim Walz and Attorney General Keith Ellison have either been asleep at the wheel or complicit in a massive fraud involving taxpayer dollars in Minnesota’s social services programs,” U.S. Rep. James Comer, a Republican, said in a Wednesday statement about the upcoming hearings.

Walz, in a statement on X last week, pushed back on the allegation that the state wasn’t taking fraud seriously, saying, “We’ve spent years cracking down on fraud - referring cases to law enforcement, shutting down and auditing high-risk programs,” linking to his December 12 commentary in The Minnesota Star Tribune.

In his Monday statement announcing the end of his re-election campaign, Walz acknowledged the controversy over fraud prompted his decision.

“For the last several years, an organized group of criminals have sought to take advantage of our state’s generosity,” Walz wrote. “And even as we make progress in the fight against the fraudsters, we now see an organized group of political actors seeking to take advantage of the crisis.”

In the December 12 commentary, he laid out some of the steps that had been taken to combat fraud such as the replacement of key leaders, hiring of new auditors and investigators, bringing in an outside firm to audit payments to high risk programs and the recent appointment of Judge Tim O’Malley – a former FBI agent and superintendent of the Minnesota Bureau of Criminal Apprehension – as the Director of Program Integrity tasked with strengthening fraud prevention across the state.

The Walz administration’s response to the day care controversy initially resulted in more confusion, as the governor’s office and the Department of Children, Families, Youth, And Children both said last Monday one of the businesses shown in Shirley’s video – Quality Learning Centre – had already voluntarily closed its doors.

But children were seen arriving at the business that same afternoon. The agency later told the Star Tribune they had only just learned that the owners had reversed themselves and decided to stay open.

CNN has been unable to reach Quality Learning Centre or its owner through their listed numbers, and a CNN reporter was told to leave the property last week when attempting to make contact.

Dozens of people, the vast majority of Somali descent, were charged in a previous fraud scandal under Walz’s tenure involving a nonprofit prosecutors say falsely claimed to be providing meals to needy children during the Covid-19 pandemic.

The scope of fraud in the state could be much larger, according to at least one federal prosecutor: Half or more of the roughly $18 billion in Medicaid funds which supported 14 Minnesota-run programs since 2018 may have been stolen due to fraud, First Assistant U.S. Attorney Joe Thompson said on December 18, according to The Associated Press.

Walz, a staunch critic of President Trump who came to the national stage as the 2024 Democratic candidate for vice-president, has pushed back on Thompson’s assertions while promising to fight fraud.

“You should be equally outraged about one dollar or whatever that number is, but they’re using that number without the proof behind it,” Walz said in a December 19 news conference, according to KARE.

“A single taxpayer dollar wasted on fraud is a dollar too much to tolerate,” Walz wrote in his Monday statement. “And while there’s a role to play for everyone – from the legislature to prosecutors to insurance companies to local and county government – the buck stops with me.”

Somali community and child care providers under pressure

The viral video and cascade of investigations have presented real turmoil for the Somali community – already the target of years of vitriol from the president and from Republicans – and for child care providers.

At least one Somali-run day care, which was not featured in Shirley’s video, was broken into and vandalized in the aftermath, according to the Minnesota Star Tribune. The Council on American Islamic Relations called for an investigation of possible bias in the incident, which they said “raises serious concerns about the real-world consequences of anti-Somali, anti-immigrant and anti-Muslim hate speech circulating online.”

Some licensed child care centres have received “harassing or threatening communications” since the scandal, the Minnesota Department of Children, Youth, and Families said in its bulletin to providers.

Several day care providers told CNN they have faced an influx of calls asking about enrollment, hours of operation, and availability which do not seem to be coming from genuinely interested parents and distract from their work.

“It’s just random calls, extra things that we don’t need to focus on,” said Kassim Busuri, who owns a day care near Minneapolis. “We need to focus on our children that we care for.”

And the ongoing funding freeze poses uncertainty for child care providers and the families they serve.

“We have thousands of families wondering if they’re going to be able to be able to get the care that their kids need, if they’re going to be able to go to work next week,” state Rep. Carlie Kotyza-Witthuhn, co-chair of the Children and Families Committee, told CNN over the weekend.

“We have child care providers and small business owners who rely on the work of those parents, not knowing if they’ll be able to keep their doors open, depending on how this freeze proceeds.”

Scrutiny spreads to Washington and Oregon

The explosive impact of Shirley’s video seems to have inspired self-styled investigators in other states with significant Somali populations, too.

Videos have popped up showing other content creators trying, like Shirley, to enter child care centres – and using their locked doors as evidence they are committing fraud. It is not unusual for child care centres to lock their doors and to deny entry to unexpected visitors, especially if they are filming.

The mayor of Columbus, Ohio, said in a statement he was aware of the videos and the state has strong safeguards to prevent theft of government child care funds.

“Actions that disrupt licensed childcare operations or create fear in these spaces are inappropriate,” read a statement from Mayor Andrew Ginther’s office.

In Washington, Attorney General Nick Brown said his office has received “reports of home-based daycare providers being harassed and accused of fraud with little to no fact-checking.”

“Showing up on someone’s porch, threatening, or harassing them isn’t an investigation,” he wrote on X. “Neither is filming minors who may be in the home. This is unsafe and potentially dangerous behaviour.”

By Zoe Sottile, CNN