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Fraud exists in Minnesota childcare assistance program, but not $100 million worth, report says

Lawmakers returned to the Minnesota State Capitol Jan. 8, 2019, for the reconvening of the Legislature. Michael Brun / Forum News Service

ST. PAUL -- Fraud exists in the state's child care assistance program, but investigators can't put a number on just how much it has cost taxpayers.

The nonpartisan Office of the Legislative Auditor on Wednesday, March 13, released a report that showed some level of fraud exists in the program aimed at helping low-income people afford childcare, but they can't substantiate a claim that that fraud came out to $100 million.

Based on the fraud cases that prosecutors have been able to prove, that number is closer to $5 million or $6 million. But there could be additional abuse of the program, auditors said, as prosecutors face challenges in proving fraud in CCAP. They weren't able to pin down a clear figure on how much the state has lost to CCAP fraud.

“We’re trying to get to 100 million and we simply couldn't do that,” Legislative Auditor Jim Nobles told lawmakers. “We couldn’t find a reasonable estimate of fraud.”

Lawmakers commissioned the report after a KMSP-TV/Fox 9 investigation found that fraud in the state's Child Care Assistance Program possibly to the tune of $100 million. The station also said some of the money was placed in suitcases that were transported from Minneapolis Saint Paul International Airport to countries in the Middle East or East Africa. And from there it could be skimmed by terrorist groups.

Auditors found that CCAP funds could have been sent to those areas and some of that money could've ended up in the hands of terrorist groups, "but for none of them did we find evidence to substantiate a connection between CCAP fraud money and support for a terrorist organization."

Reactions to the report varied, with Republicans calling for the resignation the top inspector at the Department of Human Services. Democrats, meanwhile, said it revealed that earlier reports contained unsubstantiated Islamaphobic attacks. The head of the Department of Human Services said he was working to implement additional oversight to better prevent, detect and investigate instances of fraud.

"Any instance of fraud in CCAP or other programs is unacceptable to our department," Department of Human Services Commissioner Tony Lourey said. "While the Office of Legislative Auditor’s review found no credible evidence to support allegations of fraud in excess of $100 million annually, or that CCAP funds are going overseas to support terrorist activities, any misuse of taxpayer dollars will not be tolerated."

And he said the department would set up a stakeholder advisory group to find solutions.

The report also found that questions remain about how broad the misuse of state child care assistance dollars is and more needs to be done to detect and weed out the misuse of the program.

CCAP Investigation Manager Jay Swanson alleged that half of the $217 million spent for child care assistance in the 2017 budget went toward fraud as child care centers overbilled or offered substandard care.

And that assessment caused a rift with DHS Inspector General Carolyn Ham, according to the report. Ham said she didn't trust that allegation and hired a private firm to review CCAP investigators' procedures and assessments of fraud.

Auditors who wrote the state's special review said a third-party review wasn't needed in that situation.

"We think Ham should have personally worked with Swanson and the CCAP investigators to better understand their perspective and develop a fraud estimate she can support," auditors wrote.

But that's not enough, Republican lawmakers said. They said the report presents a clear need to beef up fraud detection and investigation efforts in the CCAP program. And they called for Ham's resignation.

"We need to have accountability in government, we need to have transparency and we need to make sure that we restore trust in our citizens in Minnesota," Sen. Mark Koran, R-North Branch, said. "These are dollars that we want to make sure the most vulnerable and the most needy in our community."

They also called for making the inspector general's office separate from the department.

Democrats said changes need to be made to better address fraud and they raised concern about the initial report's claims about CCAP funds fueling terrorist groups.

“Any misuse of public funds is serious and must be addressed, but using unsubstantiated allegations as an excuse for Islamophobic attacks on an entire community is reprehensible,” said House Majority Leader Ryan Winkler, DFL-Golden Valley, said. “We will continue to support the families that rely on this vital program, and improve the affordability and accessibility of child care.”

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