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On Thursday, July 9, Minnesota daycare owner Fahima Mahamud pleaded guilty to wire fraud and conspiracy charges, admitting she scammed a federal childcare assistance program. (She reportedly used the money to buy real estate.)
Prosecutors said Mahamud stole more than $4.6 million through false claims to the federal Child Care Assistance Program. Her daycare also collected some $850,000 from Minnesota’s Feeding Our Future program by falsely claiming to serve tens of thousands of meals each month.
Mahamud’s daycare, Future Leaders Early Learning Center in Minneapolis, might be familiar to readers. It was featured by YouTuber Nick Shirley in a viral video questioning whether some childcare facilities were operating as legitimate businesses.
Shirley, who visited dozens of Twin-Cities-area childcare facilities that he claimed were receiving hundreds of millions of dollars in government funding while doing little to serve the community, was widely mocked for his efforts. His man-on-the-street-style videos drew criticism from legacy media and politicians, who accused him of xenophobia and journalistic malpractice.
Writing in the New York Times, Peter Baker pointed out that “The Minnesota Star Tribune found no evidence of fraud at the day cares that Shirley visited.”
Like Seinfeld, the scandal was a show about nothing, a conspiracy theory built not on evidence but on the absence of evidence.
“The new conspiracists,” Baker wrote, “stay focused on their bread and butter: nothing.”
On one level, it’s easy to see Baker’s point. After all, empty daycares are not proof of fraud. To “real” journalists, documents are how reporters uncover the truth. The notion that a YouTuber with a camera had broken a massive scandal was likely difficult to accept, especially when the primary evidence was, in Baker’s words, “‘nothing’—a blank facade.”
Fahima Mahamud. Sherburne County Jail
Baker might be onto something with his larger point about the weak foundations of modern conspiracy theories. But he owes Shirley a big apology, because the YouTuber helped expose a scandal that goes far beyond Mahamud. And it’s built on evidence much stronger than empty daycares.
Last month, Jay Swanson, a former manager of fraud investigations at Minnesota’s Department of Human Services, testified before Congress. He told lawmakers his team of former police officers had a “front row seat” to daycare fraud and came “face-to-face with the people committing it on a regular basis.”
“The childcare centers we investigated were not legitimate businesses,” Swanson said, “but were designed as a vehicle to steal as much money as possible as quickly as possible.”
Swanson’s testimony described evidence of kickbacks, as well as missed safety inspections because fire officials found “there were never any staff or kids there.”
The fraud was rampant and brazen. Swanson said new daycare centers were opening faster than his department could shut down fraudulent ones. But when he drafted a report to leaders at the Department of Human Services in August 2018, Swanson said he was ordered to delete his description.
“This will make us look bad,” he recalled a high-level DHS official telling him.
Swanson declined to amend his report, saying it would have been illegal to do so. Shortly thereafter, his authority was transferred to a newly hired consulting firm that had “no experience in public benefit program integrity.”
Fraud and improper payments are nothing new, of course. Federal programs are notoriously vulnerable and error-prone. Rampant Medicaid fraud has been an open secret for years, if not decades. Meanwhile, fresh research suggests there are roughly $10 billion in improper food stamp payments every year. The reason is straightforward: large bureaucracies face a basic economic problem. The people managing a program are often far removed from the people using it, creating information gaps and weakening incentives to detect abuse.
Yet, Minnesota’s daycare scandal is different. In this case, investigators uncovered fraud on a massive scale, but it was buried. This is not just fraud, but corruption.
You don’t have to like Shirley or his style of journalism to acknowledge that he helped expose a major fraud and corruption scandal and force accountability that had been missing. Since his reporting, the state has gone from denying the daycare fraud problem to implementing a mass crackdown. Fresh reports show Minnesota currently has 436 open daycare fraud investigations. Meanwhile, Swanson’s testimony provides (more) damning evidence that state officials were covering up the fraud.
Readers of the New York Times will know none of this, of course. While the newspaper has run hundreds of stories on Shirley, readers will find not one word on Mahamud’s guilty plea or Swanson’s testimony.
That’s a shame, because it’s a huge story that reveals an uncomfortable truth: Fraud in government systems is not just a problem of bad actors. It is a problem of bad incentives. And all too often, the people with the power to stop it are more interested in protecting themselves than doing the right thing.
Jon Miltimore is senior editor at the American Institute for Economic Research (AIER) and former managing editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, Washington Examiner, and the Star Tribune.
