U.S. Feds freeze Minnesota Childcare Funds as fraud investigation escalates

The US government has suspended all federal childcare payments to Minnesota as authorities ramp up an investigation into alleged large-scale fraud involving daycare centres across the state.

Deputy Secretary of Health and Human Services Jim O’Neill confirmed the funding freeze, saying it followed allegations that millions of taxpayer dollars had been funnelled to fraudulent childcare providers over the past decade.

“We have frozen all child care payments to the state of Minnesota,” O’Neill said, outlining a series of measures taken in response. These include activating the federal “Defend the Spend” system, which now requires proof of services and justification before any funds can be released.

O’Neill has also ordered a comprehensive audit from Minnesota Governor Tim Walz, seeking records covering attendance, licensing, complaints, inspections and previous investigations linked to the centres under scrutiny. A dedicated federal fraud-reporting hotline has also been established.

The Administration for Children and Families provides Minnesota with about US$185 million in childcare funding each year, supporting roughly 19,000 children. Assistant Secretary Alex Adams said any misuse of those funds directly harms families relying on the programme.

“Any dollar stolen by fraudsters is stolen from those children,” Adams said.

The investigation was triggered by online footage posted by YouTuber Nick Shirley, who alleged a widespread fraud scheme involving Somali-run childcare centres in Minneapolis. Shirley has claimed the fraudulent activity could total more than US$110 million.

In response, Homeland Security Secretary Kristi Noem announced a “massive investigation” into childcare and other alleged fraud, releasing videos showing federal agents questioning business operators.

FBI Director Kash Patel said investigative resources had been surged into Minnesota, describing the allegations as “the tip of a very large iceberg”. He warned that those found responsible could face criminal prosecution as well as denaturalisation and deportation.

Governor Walz has defended his administration, highlighting Minnesota’s diversity and large Somali community. State officials have disputed Shirley’s claims, saying the childcare centres featured in his video had been inspected within the past six months and showed no evidence of fraud.

O’Neill said the federal government would continue to pursue the case aggressively.

“Anyone involved in defrauding the American people, regardless of their position, should expect to be prosecuted to the fullest extent of the law,” he said.

We have frozen all child care payments to the state of Minnesota.

You have probably read the serious allegations that the state of Minnesota has funneled millions of taxpayer dollars to fraudulent daycares across Minnesota over the past decade.

Today we have taken three actions… pic.twitter.com/VYbyf3WGop

— Deputy Secretary Jim O'Neill (@HHS_Jim) December 30, 2025