The Department of Health and Human Services moved Tuesday to freeze federal childcare payments to Minnesota, citing what officials described as serious and widespread fraud within the state’s subsidy system — a decision that follows mounting scrutiny sparked by viral investigative reporting.
The action comes days after YouTuber Nick Shirley posted video footage showing multiple purported Somali-run daycare centers across Minnesota that appeared to have no children present during his visits. The footage quickly went viral, intensifying questions about how taxpayer dollars have been distributed and monitored.
Deputy HHS Secretary Jim O’Neill announced the freeze on social media, saying the agency was halting all childcare disbursements to Minnesota while federal officials examine how funds have flowed to licensed providers.
“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,” O’Neill wrote, signaling that the issue extends well beyond isolated cases.
O’Neill outlined three immediate steps the administration is taking to crack down on fraud nationwide. First, HHS has tightened controls on federal childcare payments by activating what he called a “defend the spend” system for all Administration for Children and Families disbursements. Under the new approach, states must now submit documentation before receiving federal funds, a shift aimed at preventing money from being sent out with minimal oversight.
Second, the agency moved directly against Minnesota after reviewing Shirley’s reporting. O’Neill said he and Alex Adams identified individuals and centers featured in the video and formally demanded action from Democratic Gov. Tim Walz.
“Alex Adams and I have identified the individuals in @nickshirleyy’s excellent work,” O’Neill said. “I have demanded from @GovTimWalz a comprehensive audit of these centers. This includes attendance records, licenses, complaints, investigations, and inspections.”
HHS also announced it will expand public involvement in uncovering abuse by launching a new fraud-reporting hotline and email portal. The department encouraged parents, childcare providers, and members of the public to submit tips as federal officials work to recover misused funds and stop future losses.
Shirley’s 43-minute video documents his visits to numerous daycare centers that reportedly received state funding but often appeared empty. The footage raised fresh doubts about whether attendance numbers and operations were being accurately reported. Local outlet KSTP reported that one facility, the Quality “Lerning” Center, accumulated 95 violations cited by a Minnesota agency between 2019 and 2023.
The controversy has also revived claims from state employees who say they warned Minnesota officials about fraudulent schemes years ago, only to face retaliation. Several employees accused Gov. Walz of systematically targeting whistleblowers while federal prosecutors moved forward with multiple fraud cases.
“Tim Walz is 100% responsible for massive fraud in Minnesota,” the employees wrote in a statement. “We let Tim Walz know of fraud early on, hoping for a partnership in stopping fraud but no, we got the opposite response.”
Walz has previously acknowledged the issue, saying during a Nov. 30 appearance on NBC News’ Meet the Press that Minnesota “attracts criminals.” That remark has drawn renewed attention as the scale of the alleged fraud becomes clearer.
For the Trump administration, the freeze signals a tougher stance on accountability and oversight, particularly when it comes to taxpayer-funded programs. By cutting off funds until Minnesota can demonstrate compliance, HHS is sending a clear message that federal dollars will no longer flow unchecked — and that states failing to police fraud will face swift consequences.
