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Minnesota cracks down on child care assistance fraud

Officials from the DHS and BCA removed boxes and computer equipment from the Salama Child Care Center, Wednesday, May 13, 2015 in Minneapolis, MN. ELIZABETH FLORES – STAR TRIBUNE

By Chris Serres
Thursday, July 9, 2015

The Minnesota Department of Human Services (DHS) has gained sweeping new powers to investigate and prosecute child care fraud, following the discovery that some providers are exploiting poor parents and their children to obtain cash assistance from the state.

State investigators say they have uncovered an elaborate pattern of fraud involving the unauthorized billing of Minnesota’s $226 million, state-funded child care subsidy program for poor families. In many cases, child care providers actively recruit low-income parents as employees on the condition that they enroll their children using public subsidies. The schemes, which reach into the millions of dollars, capitalize on poor children and divert taxpayer money away from the intended families, state officials say.

In response, the 2015 Legislature gave the agency a host of new anti-fraud powers. Starting this month, the DHS Office of Inspector General has the authority to recoup payments from child care centers that fail to document that services were actually provided. The law also makes it a criminal offense for child care providers to recruit employees based on eligibility for public benefits or family status.

Already, more than a dozen investigations of child care fraud are underway statewide, and state officials expect to ratchet up enforcement efforts as the new powers go into effect later this summer.

“We hope that providers are going to wake up and notice that it’s not business as usual anymore for billing child care assistance,” said DHS Inspector General Jerry Kerber. “There is a whole new level of accountability.”

Kerber declined to discuss the pending investigations, but said that “significant dollars are involved.” Some of the centers bill the state more than $100,000 per month, he said.

Regulating CCAP

The reforms are designed to close long-standing gaps in the regulation of the state’s publicly funded Child Care Assistance Program, or CCAP, which subsidizes the child care expenses of about 30,000 low-income children per month. Until now, the prosecution and investigation of fraud in the CCAP fell to Minnesota’s 87 individual county prosecutors, who often lacked the staff and resources to pursue complicated fraud cases that spanned multiple counties.

The result was a patchwork of enforcement efforts that enabled child care centers to continue billing for services even when there was little or no documentation showing the children were actually present. In some cases, child care owners would recruit low-income parents as employees and then provide the parents with fictitious pay stubs to ensure eligibility for assistance, DHS officials said.

The result: Money that could have been going to low-income parents — to help them pay for child care while they pursued work or education — was instead diverted to providers perpetrating fraud. As of May, there were 4,336 families on the waiting list for CCAP benefits statewide, including 2,628 families in Hennepin County, state records show. “As one legislator phrased it, we have the greedy getting in line ahead of the needy,” Kerber said.

Under legislation passed this spring, the DHS Office of Inspector General will have the same power as individual counties to terminate payments to child care providers for fraudulent billing. To further discourage fraud, child care centers also will have to report to the state when a child enrolled in CCAP has failed to show up for more than half of the days in a month.

“This statewide approach provides much-needed accountability that has been lacking,” said Rep. Tara Mack, R-Apple Valley, chairwoman of the committee that oversees state child care assistance. “It will free up any money that is being misused to go toward families that truly deserve it.”

Wisconsin crackdown

The regulatory crackdown stems from reports, dating back more than five years, that child care centers across the nation were recruiting poor parents on child care assistance to ensure a flow of public funds for their businesses. The most dramatic reports emerged from Wisconsin, where the Milwaukee Journal Sentinel found that some day care centers were billing for services when the centers were closed or the children were not even present, the newspaper found.

After hearing similar reports in Minnesota, DHS officials in 2012 paid a trip to Wisconsin, which had launched a massive cleanup effort of its child care assistance program, known as Wisconsin Shares. The crackdown included the formation of an anti-fraud task force involving federal, state and local officials.

Kerber, the DHS inspector general, decided to pursue a similar, collaborative approach in Minnesota. In early 2014, with funds granted by the Legislature, Kerber assembled a child care provider investigations unit composed of four investigators, an analyst and two agents contracted from the Minnesota Bureau of Criminal Apprehension. Faced with a serious backlog of fraud reports, the unit focused on large, complicated cases with hundreds of thousands of dollars or more in fraudulent billings, Kerber said.

The effort is already yielding results.

Since last summer, the new anti-fraud unit has played a direct role in closing four child care centers across the state. One group of child care businesses, Deqo Family Centers of St. Paul, allegedly bilked the state of more than $4 million by falsifying records. And in May, the DHS shut down Salama Child Care Center, a Minneapolis day care that had allegedly billed the state for hundreds of hours of services that were never provided.

“The majority of child care providers in this state are great,” Kerber said. “But we are very interested in aggressively putting the fraudulent [ones] out of business.”


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