ST. PAUL -- The state office that investigates child care fraud is getting its ship in order, according to Minnesota officials and a prominent Republican lawmaker.

Seven months since problems were exposed at the Department of Human Services’ Office of Inspector General, a revamp of the office has left its investigators better positioned to thoroughly and fairly watchdog taxpayer funds that pay for child care for the state’s poorest families.

The office was cast in the spotlight in March after the leader of a team of investigators said he believed there was “pervasive” fraud involving federal funds by some of the state’s largest child care providers — but that investigators couldn’t make a dent in the problem because top DHS officials weren’t focused enough on cracking down on it.

At the same time, others, including the DHS commissioner at the time, questioned whether the team of 13 investigators and staff were going about their work in the right way. Some operators of centers serving the Somali community alleged they were essentially being profiled.

The reforms enacted since, DHS leaders say, address both those concerns, resulting in an anti-fraud system that has both more teeth and more fairness.

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“Our primary focus here is really trying to ensure that the public dollars are being used well because these dollars are supposed to be going to support families and children,” DHS Deputy Commissioner Chuck Johnson said in an interview with the Pioneer Press on Thursday. “And we have a desperate need for child care across this state.”

Fraud and past problems

A host of entities who have examined the inspector general’s office over the years have found a litany of problems, with some earning more attention than others. These include findings and recommendations by outside consultants, the internal DHS Office of Continuous Improvement and the Legislature’s bipartisan watchdog: the Office of Legislative Auditor.

The problems emanated from the federally subsidized Child Care Assistance Program, or CCAP, which reimburses day care providers for taking care of kids whose parents can’t, often because they work at jobs that don’t pay enough for them to afford day care. The most classic form of fraud is when crooked day care providers bill DHS for caring for children who weren’t there. Sometimes parents are in cahoots, receiving a kickback for signing false attendance records.

In 2018, sensational allegations surfaced in media reports that up to $100 million in fraudulently obtained CCAP funds was being used to fund Islamic terrorists abroad. A number of Republican lawmakers seized on the idea, which led to a special investigation by the legislative auditor. The investigation concluded that the $100 million figure was too large, and the terrorism claim could not be substantiated.

But the legislative auditor found that fraud is a real problem with CCAP funds, and DHS was unable to estimate how much fraud was actually taking place because investigators within the inspector general’s office operated in a ham-fisted manner where tips, leads, priorities and investigations weren’t organized in any meaningful way, but rather contained in a disarray of cardboard boxes, manila files, emails and personal hard drives.

The resulting firestorm also revealed deep tensions within the inspector general’s office that appear to have contributed to the inspector general herself being stripped of her duties and put on leave — a situation that has yet to be resolved.

From 89 steps to 20

Perhaps the simplest illustration of the changes comes in the form of two internal flow charts detailing how things used to be done and how it’s done now.

In January, the process by which regulators handle tips and leads and move ahead with investigations involved as many as 89 steps. Under the new system, which was implemented in July, it’s no more than 20 steps.

For Jeff Swanson, the department’s director of management services who oversaw the reforms, the dueling flow charts provide an important insight when seen from a 30,000-foot view: Problems of the past weren’t so much incompetence as a poor and inefficient process, a ship that didn’t sail well because it was clad with “bureaucratic barnacles.” He used an old adage of workplace efficiency to describe the idea: “A bad process beats a good person every time.”

Then and now

Here are some examples of how worked then, compared with how it works now:

  • Then: Day care inspectors, who often have the best vantage to see potential problems, had only limited interactions with investigators, many of whom are former police detectives trained to spot and catch fraudsters. The result was missed opportunities to spot fraud early.

  • Now: Inspectors and investigators are teamed up, giving investigators a chance to see facilities in person. If the right balance is struck, Johnson said everyone benefits because potentially unscrupulous providers could be deterred by knowing DHS is watching, while honest operators who are confused about how to follow the rules have access to their overseers at the beginning.

  • Then: Three strikes and a high bar to yank a provider’s license. When problems were found with a provider, officials had options that were quicker than criminal probes, which can take up to six years to complete. But they were still cumbersome. The first offense was a one-year license suspension, the second a three-year suspension and the third a permanent revocation. The legal threshold for an administrative law judge to uphold each step was “clear and convincing evidence,” a bar only slightly below the “beyond-reasonable-doubt” threshold for criminal convictions.

  • Now: Two strikes and a lower bar. Today, a first offense is a three-year suspension and the second offense is a permanent license revocation. And the legal threshold for each is a “preponderance of the evidence,” a lower burden of proof. These changes, like a number of others, were possible because lawmakers and Gov. Tim Walz approved changes to state laws in the spring.

  • Then: Gut instinct and tips often determined who was investigated. The old system, which was largely based on paper, made it difficult to check on the progress of an investigation and track patterns. It also made it nearly impossible to tell if investigators were applying consistent standards when deciding whom to investigate. “It was very frustrating,” Swanson said. Senior officials don’t think racial bias was driving past decisions, but no one at any level of DHS was able to adequately respond to that allegation when it was raised.

  • Now: Data and consistent standards drive where investigators focus. Tips are still an invaluable tool, but they are evaluated, along with other leads, by a team of regulators with diverse backgrounds who triage information as it comes in. Meanwhile, everything is now entered into a database that officials can use to spot suspicious activity, such as attendance irregularities.

Racial bias, bureaucratic resistance?

Johnson and Swanson said they’re confident the new, data-driven approach will address the risk of racial bias by regulators, but the agency has a troubled track record in that regard. A man who was hired to call out racial inequities was fired earlier this year — and he alleges it was in retaliation for trying to do his job.

In April, DHS hired Mohamed (Mourssi) Alfash as an “equity coordinator” for the Office of Inspector General. CCAP anti-fraud efforts fell under Alfash’s charge. According to his job description, a crucial skill he would need would be a willingness “to address difficult issues, challenge the status quo, and champion new initiatives” while working inside and outside the department with both investigators and those the agency serves and regulates.

But, he said, “I was not allowed to do any of this. I was fired when I tried.” Alfash alleges he was stonewalled from early on, the result of bureaucratic intransigence.

Johnson said state personnel rules prevent him from discussing Alfash’s situation.

Two state lawmakers, Sen. John Hoffman, DFL-Champlin, and Sen. Jim Abeler, R-Anoka, have sided with Alfash.

“He is a good man who we believe was not given a full chance to thrive and share his talents within the Office of the Inspector General,” Abeler said.

Republican critic: ‘Extremely impressed’

Abeler has been an outspoken critic of the inspector general’s office.

Human Services officials recently gave him a close-up look at the revamped operation, and he was “extremely impressed.” What struck Abeler the most, he said, was how organized the office was in receiving and handling fraud tips.

The revamp has turned the office from a “toothless” operation into one that is more equipped to claw back even the smallest sums of money, Abeler said.

“It’s a rare story of government does something right,” said Abeler, who chairs the Senate human services reform committee. “They took a nonfunctional department and they actually made it so it could function and actually be streamlined.”