APPENDIX B:
SWANSON E-MAIL ON CCAP FRAUD
Mr. Swanson prepared this e-mail in response to questions posed by the Office of the Legislative
Auditor (OLA). He sent it to Inspector General Carolyn Ham for review. DHS Commissioner
Emily Piper sent the e-mail to OLA on September 4, 2018. In her September 4, 2018, letter to
OLA, Commissioner Piper said: “Some of the information contained within the document is
new to me, DHS’s deputy commissioner, and others on our leadership team. Although we have
not yet fully vetted the accuracy and veracity of all components of the document at this point, I
did not want to delay sharing this information with you and your team….”
When DHS officials learned that OLA would make Swanson’s e-mail public in this report, they
requested that OLA redact several specific names and references based on data privacy concerns.
We agreed. The redactions are on pages B-6 and B-11.

Date: August 24, 2018
From: Jay Swanson, Manager, DHS Recipient & Child Care Provider Investigation Unit
To: Carolyn Ham, Inspector General, MN Department Human Services
Subject: DHS-OIG Response to OLA Inquiry of 08/03/2018
Since its inception in 2014, the Child Care Provider Investigations Unit has seen, in nearly all the
cases it has investigated, CCAP providers using a similar scheme to successfully steal large sums
of taxpayer money from this program. Based upon our four years of experience investigating
fraud in this program, it is our opinion that while a significant amount of responsibility for this
large scale theft of CCAP funds rests with the sophistication and daring of the criminals
exploiting this program, an equal amount of responsibility rests with the lack of internal controls
involving statutes, CCAP policies, and rules that dictate how this program operates.
When this unit was formed in mid-2014, it was originally staffed with 4 investigators, and 1
manager (who had oversite responsibilities for other units within DHS as well), as well as two
BCA Special Agents which DHS contracted for. Over time a unit supervisor was hired, followed
by a criminal forensic analyst, and beginning in late 2017 and carrying into mid-2018, 6
additional investigators and an investigative assistant were added to the unit. The initial group of
4 investigators consisted of retired law enforcement officers averaging 20 years of experience
each, with many of those years spent investigating a variety of crimes up to and including
homicide. The supervisor and manager were each retired law enforcement officers averaging 35
years of experience, many of those involving the investigation of crimes including narcotics
trafficking and extensive experience investigating a wide variety of fraud. The manager &
supervisor each have years of experience investigating federal crimes, conducting joint
investigations with multiple law enforcement agencies, and having cases prosecuted in federal
court. The recently hired investigators each have significant experience as law enforcement

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officers investigating a wide variety of crimes, and the criminal forensic analyst joins the unit
with approximately 15 years of experience holding the same position with the BCA. I draw
attention to the collective experience of this unit readers of this document can draw reasonable
inferences as to the ability of this unit to make the assertions, and reach the conclusions
contained herein.
The investigators in this unit, as well as each of the BCA Special Agents that have been assigned
here are committed to aggressive investigation and prosecution of persons involved in defrauding
CCAP. We recognize that aggressive investigation and prosecution of those responsible for large
scale CCAP fraud is a critical element in solving this problem. These investigators and agents
however also firmly believe that the extraordinary level of weaknesses present in the internal
controls of this program will allow the fraud to continue unabated, or unfortunately possibly
increase, until changes are made in this area. The weaknesses in internal controls will require
changes in state statutes, CCAP policy, and Rules. Described below are the primary program
integrity issues facing CCAP, along with some possible solutions.
Many child care centers engaged in large scale overbilling
DHS investigators routinely uncover large scale overbilling after receiving information in the
form of tips or leads that specifically mention the overbilling taking place, or that mention
activities which in their experience is indicative of a provider that is overbilling as well as
possibly engaged in additional fraudulent activity. Since this unit became operational, it has
always been faced with far more tips/leads which they deem to be likely valid, than they are able
to investigate.
Throughout its existence, the unit has received tips/leads from a wide variety of sources. These
include: county CCAP staff, DHS Child Care Licensing staff, the general public, CCAP parents,
current and former employees & co-owners of child care facilities, a variety of other government
agencies, and community members. With a finite (albeit recently increased) staff of
investigators, the investigators are nearly always carrying a full load of cases. As soon as
investigative resources become available as a case is completed, the unit manager and
supervisor, having reviewed the tips/leads as they come in, discuss these with the investigators.
After discussing the nature and severity of the tip, its likely credibility, the possible ties to other
cases either under current investigation or past investigations, and the amount of CCAP funds
that have been paid to the various providers, the manager, supervisor, and investigators reach a
consensus on which provider should be investigated next.
Once a case has been selected for investigation, a preliminary workup is completed to research
the known owners and controlling individuals involved in the providers operation. Often the
information contained in the tip/lead may not specifically indicate overbilling CCAP, but it has
been our experience that often the highly unusual actions alleged to have occurred involving the
provider indicate overbilling or financial misconduct involving CCAP is likely occurring as well.
In order to prove a provider is overbilling CCAP, it is necessary to document how many children
were cared for on a particular day, and later compare that to the number of children the provider
claimed, via its billing, to have cared for. To do this investigators conduct both physical and video
surveillance of a providers location. Physical surveillance is difficult to maintain for extended
periods of time both from the investigators perspective (how many hours can an investigator sit in

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a vehicle without moving, as well as leading to an increased likelihood of being detected by
persons associated with the provider. Video surveillance is the preferred method of surveillance,
since it results in evidence that can be introduced in either a criminal or administrative proceeding.
When video surveillance is conducted at a provider’s location, it is recorded, and while an
investigator still must watch the video the same as they would watch a center physically, the video
can be stopped at any time and the investigator can resume watching it at a later time.
Additionally, if there is any question regarding how many children walked into a center at a
particular time, the video can be replayed as many times as necessary to ensure an accurate count.
In the 15 cases where this unit has directed CCAP payments stopped due to demonstrated
intentional overbilling, the 15 centers overbilled by a combined total of 12,667 children over a
total of 530 days, or an average of 23.9 children per day, per center. These 15 centers were paid a
total of $56,361,680 in CCAP funds during the time those centers were in operation.
The fraud problem is so pervasive in this program that investigators at any given time have
concerns, due to information received, or becoming aware of actions/indicators by a center that
mirror indicators commonly seen by known fraudulent centers (actions or indicators that are not
observed in legitimate child care centers). In CY2015 investigators had fraud concerns involving
35 of the 50 highest paid centers. In CY2016 there were concerns involving 41of the 50 highest
paid centers. In CY2017 there were fraud concerns involving 42 of the 50 highest paid
centers. Taking a broader look at the scope of the problem, in 2017:
- Investigators have significant concerns regarding 72 of the top 100 highest paid centers.
- Investigators have significant concerns regarding 100 of the top 150 highest paid centers.
In 2017, the top 100 providers were paid a total of $118,208,722, or 54% of the CCAP
funds paid to child care centers. In 2017, the top 150 providers were paid a total of
$146,217,382 or 67% of the CCAP funds paid to child care centers. Investigators in this unit
believe auditors and elected officials should be very concerned about the high number of the
highest paid child care centers that display indicators of fraud. This concern should be amplified
when one considers the percentage of program dollars paid to these highest paid providers.
Below is a breakdown showing the average CCAP payments made to the 50 highest paid centers
as compared to the remaining 1,043 centers.
CY2017 CCAP PAYMENTS TO LICENSED CHILD CARE CENTERS
50 HIGHEST PAID CENTERS
TOTAL PAYMENTS: $76,052,255
AVG TO EACH CENTER: $1,521,045

REMAINING 1.043 CENTERS
$141,169,955
$135,349

CCAP eligible mothers recruited by providers paying cash kickbacks
In a number of the cases investigated thus far, DHS investigators and BCA agents have
determined that the child care center owner(s) have recruited CCAP eligible mothers by offering
to pay kickbacks to entice the mothers to advise county CCAP staff that their children are
attending a particular center. It is very common for center owners to pay kickbacks to the
mothers of $200+ per child per month, with the highest kickback investigators have been told
about by mothers being $300 per month per child. Providers do this to attract as many
parents/children to their center as possible, so that providers can bill CCAP for the largest
number of children possible. The only requirement of most mothers is that they come regularly

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to the provider’s location to sign attendance records claiming all their children were at the center
for the number of hours they were authorized for. The kickbacks are often paid in cash, which
are not reported by mothers (such reporting may make them ineligible for benefits). In other
instances the mothers receive what is purported to be a payroll check, when in reality the check
is their kickback. These “payroll checks” at times are issued from the child care center, however
as the restrictions on the number of parents who can work at a child care center their children
attend become more restrictive, child care center owners are opening shell businesses such as
janitorial companies or catering companies & issuing checks from those businesses. These types
of businesses normally have no legitimate operations, and the only purpose they serve is to
provide “a place of employment” which mothers need in order to remain eligible for the
program. Investigators have interviewed some mothers who admitted this takes place, and have
even recovered internal video footage showing an individual handing envelopes to mothers, and
found an employee of that child care center that admitted that those were cash kickbacks in the
envelopes, not payroll checks. That mother advised that you could easily tell the difference
because the kickbacks were always in white envelopes and paid on a Saturday, while payroll
checks to employees did not come in an envelope, and were issued on a different day of the
week. DHS Licensors and OIG investigators regularly see documents, and interview excessive
numbers of mothers of CCAP children who claim to be cleaners or janitors (in a facility that is
filthy), or a large number claiming to be “kitchen help” when investigators viewing surveillance
video for 30+ days have observed the only food going into a center is take-out pizza in a box.
Some centers also seem to have a significant number of mothers whose job is that of a “toy or
book washer”. Investigators and Licensors have seen males whose purported job a child care
center is “security”, or “paper filer”.
Fraudulent centers opening in same location as previously fraudulent center
This unit has seen a number of instances where a child care center has been closed due to having
CCAP funding stopped as a result of fraudulent billing and/or criminal charges being filed
against the owns. It has become a regular occurrence for DHS Child Care Center Licensing to
receive an application for a new center, in the same location as the recently closed center within
a few weeks of the other center closing. In time investigators determine that the newly opened
center is also defrauding CCAP. Investigators strongly believe that many of these cases what
occurred was that a sale took place on paper, and that the previous owner is likely a silent (off
the books) partner in the new business.
Child care centers being opened for no reason other than to defraud CCAP
Since this unit was formed, investigators have heard reports from DHS Child Care Center
Licensing that persons with no experience in child care, have been opening child care centers. As
cases have been investigated we have seen repeated instances of persons associated with the
operation of these centers that have no background in child care. Additionally, individuals have
advised us that in these types of situations there are almost always several “silent owners” who
have a financial interest in the center (greater than 5%), but whose identities have not been
disclosed to DHS as required by law. The individuals that disclose this information to
investigators often are persons formerly associated with a center and are in a position to know
such things. In several cases thus far, investigators have found, during searches of the business,
evidence corroborating such claims, generally in some type of financial document showing

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payments made to other individuals, often with a percentage of ownership noted. Some former
co-owners of these centers, & some parents of CCAP eligible children have told investigators
that it is common knowledge in certain communities that being an owner, or even partial owner
of a child care centers is the easiest and surest way for immigrants to get rich in the U.S. An
OIG study in 2017 showed at that time that there were in excess of 320 child care centers
receiving CCAP payments in Hennepin County alone.
Child care centers operating with nearly 100% public clients
Of the 15 child care centers DHS-OIG has stopped payments due to fraud thus far, all of the
centers have operated with 100%, or nearly 100% CCAP clients. This model encourages
fraudulent operation, since owners have recruited mothers based on them having CCAP eligible
children. Since parents are recruited by offering kickbacks equal to or greater than other centers,
as well as being told they are their children do not have to attend the center with any degree of
regularity, the whole manner of operation is by definition fraudulent.
Child care centers creating false documents
In nearly every case thus far, investigators have seen providers that create a variety of false
documents in order to become licensed and to operate. This starts with false information on the
license application regarding who the owner(s) and controlling individuals of the center are.
Investigators have found fraudulent training certificates created by owners, purporting to claim
that employees have completed required training in the area of children’s safety. Often a clue is
that the certificates for various training session purport to claim all employees completed the
training on the same date. At times the suspicion regarding the documents is proven when
employees admit that they never completed the training the certificate in their file claims they
completed. The single most fraudulent document center owners provide to investigators are the
attendance records. In every case thus far, when the attendance records of a center are compared
against the video surveillance logs, the scope of the discrepancies between the two leaves no
doubt that the attendance records are a complete fabrication. There are large discrepancies
between both the number of children that attended the center on a given date, but also, and even
more telling is the times at which children purportedly arrived. It is not unusual to see attendance
records that claim X number of children arrived at the center between 8:00 am and 11:00 am,
when the video surveillance shows only a fraction of that number of children actually arrived,
and the purported arrival times according to the attendance records did not even come close to
matching the times children were observed arriving at the center on video (see attached example
of an analysis between attendance records and the video log).
Center owners engaged in large scale money laundering
Most of the investigations conducted to date have revealed clear evidence that owners and
controlling individuals of these fraudulently operated child care centers are engaged in money
laundering on a large scale with the proceeds from CCAP fraud. This activity generally involves
having an unusually large number of accounts at various financial institutions before the money
reaches its final destination.

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Some industry representatives engaged in illegal activities
In late 2016 DHS officials were contacted by a newly formed group, initially comprised of 6
individuals, purporting to represent a segment of child care center owners, advising that they had
formed an association of minority child care center owners. Some DHS officials began meeting
with these representatives, who professed that they wanted to work with DHS to reduce or
eliminate fraud. In one of the early meetings, on 12/20/2016 a DHS management official
reported to investigators immediately after a meeting with association representatives that the
association reps wanted DHS’ help in enacting regulations that would prohibit CCAP parents
from moving their children from one center to another. When DHS officials advised that they
would not agree to this, the association reps advised that if DHS could assist with this, that it
would help to lower the number of fake paychecks that providers give clients, and would
eliminate the need for providers to pay kickbacks. The association rep stated “If we make
$50,000 a month, but pay out $30,000 to mothers in kickbacks, we lose profits”.
Shortly after these meetings began, Child Care Investigators met with a community member who
walked into the DHS office. This community member wanted to make investigators aware of the
intentions of this group of representatives. The community member advised that many other
community members referred to this group of child care center owners as “the sharks”.
Investigators were told that the child care representatives were going to profess to want to work
with DHS, while at the same time attempting to derail investigations of fraudulent centers, and
attempt to gain inside/advance knowledge of DHS’ plans regarding child care program integrity
efforts, so that their group could develop plans on how they could continue to defraud CCAP. As
soon as the identities of the representative group became known, investigators conducted basic
research and learned that various state and federal law enforcement agencies, and other
government entities held very reliable information that approximately 1/2 of the members were
clearly engaged in serious criminal activity. Investigators made DHS management aware of the
general problem without going into specifics, so as not to compromise current and future
investigations. In early 2017 the Acting Inspector General and the Manager of Child Care
Provider Investigations were advised to meet with the association representatives. During that
meeting the representatives interrupted the Acting Inspector General, and stated they wanted to
speak to the “fraud guy”, because when his people show up, their centers get shut down and the
money is stopped. Association representatives requested the Managers cell phone number, and
advised that DHS did not have to go looking for fraud, that the Association would call and tell
the Manager which centers were engaging in fraud, and then the fraud guys “could go out the
next day and shut them down”. The Manager refused to provide his cell phone number, and
advised the association reps that they could make fraud reports either via phone, or online, and
they could remain anonymous. The association reps were advised that in any event, no
investigators would be going out the next day to shut a child care center down, since there would
be a need to conduct an investigation to determine if a provider was committing fraud before any
action was taken. The association reps repeated their demand several times that they wanted the
Managers cell phone number, and that they expected action the next day. They did not appear
satisfied when these demands were not met. .

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In the summer of 2017, a DHS Child Care Center Licensor reported to investigators that on visits
to two child care centers, owners of those centers had recently reported that several members of
this association had arrived at their centers in a van, and had attempted to convince these center
owners that they should join their association. One of the center owners reported that they were
told the association dues were either $1,200 per month, or per quarter, they could not remember.
When the owners stated they did not want to join the association, they were told that if they did
not join the association would report them for fraud to DHS, and DHS would shut their business
down. The association reps also told the owners that they have met with the Governor and with
DHS bosses, and that they can make things like this happen.
Center owners moving fraud proceeds out of the U.S.
In nearly every case, BCA agents assigned to these cases have obtained bank records of owners
and child care centers once they have documented that there is probable cause to prove that
CCAP fraud is being committed. These records, clearly show that some owners/controlling
individuals have made large wire transfers to banks primarily in the Middle East or Africa, often
soon after they receive a large CCAP payment. BCA agents and DHS Investigators work closely
with federal law enforcement agencies, and when evidence of federal crimes are uncovered
during a child care investigation, that information is shared with the appropriate agency. While it
is not within the purview of either DHS investigators or BCA agents to determine the final
destination of the money sent overseas by persons involved in child care fraud, investigators
have been advised by federal officials going back to 2015 that it is a near certainty that at least a
percentage of the fraud proceeds that go overseas are being siphoned off by one or more
Designated Terrorist Organizations (DTO’s). BCA agents and DHS investigators have often seen
clear evidence of money laundering and tax evasion being committed by persons associated with
child care centers they have investigated. BCA agents and DHS investigators also review data
obtained from the cell phones and computers used by persons operating suspected fraudulent
child care centers. Information obtained from these sources, in some cases, has provided
investigators and agents with clear proof that owners/controlling individuals have taken
deliberate steps to defraud CCAP. Analysis of these electronic devices also shows that some of
these child care center owners/controlling individuals have purchased or are in the process of
purchasing expensive homes in stable foreign countries.
Current State computer systems are unable to capture IP address of computers
billing CCAP
In early 2015 investigators in this unit discovered that state data systems were not capturing the
IP address of computers used to bill CCAP. Individuals who use a computer to bill CCAP, do so
via a program named MEC2Pro. Investigators in this unit have also discussed this matter with
SIRS Management, and learned that state systems are not capturing the IP address of computers
billing DHS for Medicaid Services. In 2015 this weakness was brought to the attention of the
Commissioners of MNIT and DHS. To date this unit is not aware that any concrete steps have
been taken to capture and retain this information in a format that would allow investigators to
query it. It is a significant weakness of these programs. In order to prove who submitted
fraudulent billing to either CCAP or a Medicaid program, the first step would be to locate the IP
address of the computer that submitted the bill. Speaking only for CCAP, the lack of this basic
information has significantly increased the amount of time to complete investigations, as we

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focus on attempting to determine who was responsible for the fraudulent billing. In some cases
even after spending hundreds of investigative hours in this area, we have been unable to prove
who actually did the billing. It should be noted that this weakness leaves both these units in the
blind as to who is actually billing for the state for several billion dollars per year between
the various programs.
Large scale collusion involving fraud between providers and recipients
In the CCAP program as it currently exists, providers seeking to garner as many CCAP funds as
possible, and willing to commit fraud to do so, can’t do so without large numbers of CCAP
eligible children. As a result of the large number of providers who are willing to pay kickbacks
to mothers just to register their children at a center, mothers have many choices of where to
register their children at. It is common knowledge among both fraudulent CCAP as well as
CCAP eligible parents, that mothers or parents with a larger number of children are significantly
more valuable to a fraudulent provider than a CCAP mother with one or two children.
Investigators have repeatedly heard stories of mothers with 8 or 10 children who have gotten into
“bidding wars” with various providers wishing to register those children at their center because
of the CCAP billing they would generate. In addition to kickbacks, providers and mothers “work
the system” in order to maximize the CCAP billing. For instance, a mother with both pre-school
and school age children will be told that during the school year they will be offered a job at the
child care center, but only on the evening shift. This is done so that the provider can bill for not
only the pre-school aged children, but also the school aged children (once the children are out of
school in the afternoon).
Excessive time allowed for providers to submit CCAP bills
Currently providers can submit bills up to 60 days after a two week billing period ends, however
the statute seems to indicate that with good cause a provider could submit bills up to one year
after the claimed date of service. In most of the cases investigated thus far, DHS-OIG
investigators see providers that stagger their billing, and frequently wait for close to the 60
period before submitting all billing for a billing period. This causes investigators who have
conducted surveillance on a center, and who know how many children actually entered a center
on a given day, to often have to wait up to 60 days before they are able to determine if a provider
overbilled. This limit should be reduced to 30 days after the last day of the billing period.
No minimum stay requirement before a provider can charge for a full day.
In every case this unit has investigated in the four years of its existence, investigators have seen
many children who are not at the center for the number of hours that are being billed for, or that
are indicated on the attendance records. Currently counties and agencies can approve up to 120
hours of child care every two weeks for each child. Providers are allowed to bill for the number
of hours authorized. In every investigation investigators see numerous instances of mothers
bringing their children to a center for short periods of time (approximately 15 minutes), and then
leaving with the same number of children then entered with. In these instances investigators
believe the mother is simply signing attendance records-perhaps for that day, possibly for a week
or two. Another common scenario involves mothers bringing their children to a center later in the
afternoon (approx 4:30 pm), the mother staying with the children at the center, and then mother
and children departing in the early evening (approx 7:00 pm- 8:00 pm). During this time period

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investigators frequently see pizza being delivered to the center at approximately 6:00 pm6:30 pm. In these instances it is believed that mothers are signing attendance records, mingling
with other mothers, children are playing, and that it is essentially a taxpayer funded social event,
which ends after mothers and children have a pizza dinner. It is imperative that statutes
governing this program be changed to require children to be present for a certain number of
hours per day before a provider can charge for a full day. Additionally, due to the very high rate
of fraud involving paper attendance records in these types of cases, use of an attendance record
keeping system that uses biometric scanning is essential.
Providers “find” attendance records months after investigators make request
Current statutes would seem to clearly state that child care providers must make their attendance
records immediately available to counties or the commissioner upon request. A recent tactic
successfully used by attorneys for providers, is when faced with a large overpayment due to
inadequate or missing attendance records when county or OIG investigators made an on-site
request, is to produce newly found records at the time of an appeal hearing, and having judges
rule that those records (which now fully support a providers billing) will be accepted as
evidence. This apparently clear statute needs to clarify that any attendance records not provided
to investigators on site will not be admitted in evidence at any criminal or administrative hearing.
Current method of calculating attendance record overpayments too time consuming
When faced with attendance records that do not support a providers billing, counties currently
have to undertake a very time consuming process to calculate the provider’s overpayment. DHS
is recommending that the overpayment calculation be simplified so that any day that a providers
attendance records do not contain all data required by statute, that the overpayment be one daily
rate for the age of the child involved.
Inability to stop payments to fraudulent providers
The database used to manage the Child Care Assistance Program is MEC2. There is no method to
immediately shut off payments to a provider when it has been determined that the provider has
fraudulently billed CCAP. The system allows counties and agencies to close a provider’s
registration, and after a registration is closed in a county, if a bill were to be submitted for care
after that date, that bill would be rejected by the system. The problem that exists is when DHSOIG determines a provider has fraudulently billed CCAP, OIG can direct counties to
immediately stop payments and close a provider’s registration. The issue arises if say 45 days
later a provider submits a bill to a county, and the bill claims to be for service prior to the date of
the providers registration being closed, that unless a county worker remembers that this specific
provider is in effect on a “do not pay list”, and approves the bill, the bill will be paid.
DHS-OIG has seen time after time in its fraud cases that bills are being paid to fraudulent
providers, either because they are accidently approved, or a bill is in the pipeline at the time
DHS-OIG orders a payment stop. System upgrades should be made to allow DHS to
immediately stop all payments to a provider once fraud has been determined. A recent study of
this issue on the 15 DHS-OIG provider fraud cases show each provider received at least one
payment after DHS-OIG determined fraud. The total payments made to these 15 providers
after fraud was determined was $776,063.86.

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In addition to system upgrades to allow for immediate payment stops,this unit strongly suggests
system upgrades to require billers to enter the number of hours billed for each child each day,
instead of the field being pre-populated, and stringent fraud warnings requiring an
acknowledgement before a bill can be submitted.
Young children whose mothers are not at a center are not fed
DHS investigators have received multiple reports in the last four years from immigrant mothers
who advise that it is very common, that if a young child is at a child care center, and their mother
is not present, that the child will not be fed. In each case the mothers have explained to us that
older children (such as school aged children) are big enough to fend for themselves, and the
younger children whose mothers are “working” at a child care center will ensure their young
children are fed, but that in their culture, these mothers feel no responsibility for feeding other
young children that are not their own, even if the mother is a center “employee”.
Centers claim to care for children on multiple shifts
In every case investigated thus far, providers have claimed to be caring for children on two
shifts. One shift has children arriving in the morning, and then those children leaving in the
early-mid afternoon, and another shift of children arriving in the late afternoon and staying until
approximately 9:00 pm. Video surveillance in this cases has clearly proven children are not
arriving as early as claimed, and are not staying as late as claimed. Investigators have determined
that the reason for the providers actions in this area is so they can bill for more children each day.
Every child care center has a capacity for their building that is set by local fire officials based in
part on the square footage of their building, and is reflected on their child care center license. By
billing for children on two shifts they can double the number of children billed for each day. For
example a child care center with a capacity of 75 could bill CCAP for 75 children on a day shift,
and 75 children on an afternoon shift, for a total of 150 children per day.
DHS has no control over who becomes a CCAP provider
Licensed child care centers wishing to become a CCAP provider enroll through the various
counties and agencies. The amount of information required from these providers is minimal (see
attached Provider Registration form). DHS-OIG has made requests that the form be altered to
require more biographical information and a copy of a U.S. state driver’s license or state ID card
be obtained at the time of application in addition to the SSN’s of the person(s) wishing to
become CCAP providers. OIG spends many unnecessary investigative hours proving who a
specific provider was due to this lack of biographical data. This situation becomes even more
difficult when the provider has gone out of business. When one looks at the amount of money
that can be siphoned from CCAP by a fraudulent provider, obtaining additional identifying data
to assist investigators in locating that person should not be an issue. This function should be
transferred to DHS-OIG.
DHS has no control over who obtains access to the MEC2Pro billing system
As with those wishing to become CCAP providers, DHS should have control over who can
obtain access to the billing system. Again this is done through the counties and agencies. Again
OIG has requested that additional biographical information and a copy of a U.S. state driver’s

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license or state ID card be obtained at the time of application, and this request has been denied.
In this vitally important question of who is actually doing the billing for CCAP providers, this
function should be transferred to DHS-OIG with appropriate changes in state law to require the
necessary biographical information and identification to ensure that at a minimum we know who
is being given access to the billing system.
Current burden of proof for provider disqualification is too high
State statutes are somewhat unclear on what the burden of proof is for child care provider fraud
disqualification cases, although the DHS Appeals Division has settled on proof by Clear and
Convincing Evidence. This burden of proof is different from all other DHS provider types. All
other provider types have a burden of preponderance of the evidence. The difference is quite
significant, because it requires investigators to invest hundreds of additional hours on each case
in order to develop that level of evidence. In doing so it slows all cases down, because the
additional investigative resources spent developing these cases could be spent on other cases.
Providers falsifying/misrepresenting employee identities and qualifications
DHS staff often encounter center employees who provide their names, and a short time later
when center owners are asked for the personnel files of the employees on site, hand DHS staff
personnel files with completely different names, and accuse DHS staff of intimidating employees
so the employees provided false names. In nearly every one of these instances the owner was not
present in the classroom when the DHS staff person had the conversation with the center
employee.
Fraudulent “High quality” centers receive higher reimbursement rates
The CCAP system has provisions for providers that have been certified by certain organizations
as essentially high quality centers to receive higher reimbursement rates from CCAP. The
certification process for these programs relies heavily on an easily created paper trail that a
provider, in concert with others can and have created. In the last four years the Child Care
Provider Investigation unit has built fraud cases, and stopped payments due to fraudulent
billing to 6 “Parent Aware” rated centers. This means that 40% of the cases this unit has
investigated involve large scale billing fraud being committed by a “high quality” provider.

While the stated goal of these programs are
laudable, the reality is that their business model will always leave these rating vulnerable to
fraud, which is not difficult for a determined provider.
Additional fraud trends/concerns
 Identity falsification / misrepresentation.
 The names on personnel files in CCAP Centers did not match the names provided by
onsite teachers/staff providing services to children in some cases.
 Centers fail to disclose all owners or controlling individuals in their licensing
applications.

 B-12

Special Review

 False jobs / False Pay Stubs to meet CCAP qualification requirements. Tax Fraud.
DHS Licensors would document that the CCAP facility was dirty and unsanitary, despite
CCAP Center records stating that the Center employed a large number of parents as cleaners
or janitors each working 20-30 hours per week. When checking employee personnel files at a
center, Licensors would note that there was an abnormally high number of staff, the majority
of whom were parents of CCAP children. Licensors believed no business could operate
profitably with the number of staff, and hours worked, claimed by the center. The job titles for
these employees were titles Licensors had not seen previously at child care centers, such as:
 A large number of “kitchen helpers” at a center that does not prepare food, but uses a
caterer.
 “Security” staff
 “Landscaper”
 “Hall monitor”
 False Pay Stubs to Meet CCAP Qualification Requirements.
County case workers repeatedly encountered parents providing false pay stubs as evidence of
employment. Applicants for CCAP told case workers that they were not employed or going to
school. These applicants were informed that they were required to provide proof of
employment or school attendance before they were eligible for CCAP. In some cases, the
applicant would return the next day with pay stubs from the CCAP Center they wanted their
child to attend, documenting that they had been employed for 4 weeks. When questioned
about their earlier statements that they were unemployed, some applicants stated that the
owner of the CCAP Center printed out false paystubs and told the applicant to provide them
to the county caseworker.
 Parent coercion / intimidation by CCAP Centers.
Parents informed county CCAP eligibility workers that they had applied for positions at
CCAP Centers, but were told they would not be hired unless they were approved for CCAP
and agreed to have their children registered at the CCAP Center they wanted to work at.
 Facilities Fraudulently “Staged” for Purposes of Obtaining a CCAP License.
During pre-licensing inspections, Licensors would observe all necessary toys, books, and
equipment in place. After becoming licensed, when the same Licensor made a follow-up visit,
the vast majority of the toys, books, and equipment was not present in the center. Licensors
would often see that when parent employee were arriving after the Licensors were onsite, the
parents would be carrying baskets of toys or books to supplement the minimal amount of toys
or books present in the center. When Licensors quested the parents as to why they were
bringing a basket full of toys or books, the parent advised that they “had been washing the
toys and books”.
Conclusion
Investigators in this unit do not believe, despite the number of cases investigated thus far, that
any real progress has been made regarding CCAP fraud. Investigators believe that current
internal controls and statutes are not stringent enough to make reasonable progress in reducing
the level of fraud in this program. Investigators regularly see fraudulent child care centers open
faster than they can close the existing ones down. Investigators believe drastic actions on several
fronts (legislative as well as policy) are needed to make progress in this area, not only to reduce
the significant waste of taxpayer dollars involved in this program, but to also attempt to provide
a reasonably effective pre-school education for this high risk group of children. Immediate action

 Child Care Assistance Program: Assessment of Fraud Allegations

B-13

is also necessary to curb the large flow of CCAP fraud proceeds leaving the country that are
likely being used for purposes that should concern most taxpayers. Investigators within this unit
are in regular contact with federal law enforcement officials, as well as fraud investigators in
other states, and are aware that the significant issues seen in Minnesota regarding this program
are also taking place in a number of other states.
Investigators, as well as the Supervisor and Manager of this unit believe that the overall fraud
rate in this program is at least 50% of the $217M paid to child care centers in CY2017. In
arriving at this opinion, members of this unit want to make clear how they would define fraud.
The fraud amount used in prosecuting criminal or administrative cases in this program involves a
simple calculation of how many children arrived at a center, and how many children did the
provider bill for on a given day. If one takes a higher level view of this program and realizes that
in these fraudulent centers, our investigations have shown that mothers are not receiving
legitimate employment experience (by having no show jobs or jobs that simply require them to
spend a few hours a day at a center watching their own children, and that several internal video
systems seized from these centers show day after day that children are unsupervised, running
from room to room while adult “employees” spend hours in hallways chatting with other adults,
or talking or texting on their phones, one could reach the conclusion that the entire amount paid
to that provider in a given year is the fraud amount, since neither the children or the taxpayers
received what was being paid for.
In closing, some state officials have referred to a former DHS employee who testified in a Senate
committee hearing this past May on the topic of CCAP fraud as a “disgruntled former
employee”, or something similiar. The impression left by these state officials was that this
former employee (Mr. Scott Stillman) should not be believed. I will speak only for myself here,
any state officials who wish to question other investigators in this unit will have to speak to those
investigators individually. Mr. Stillman is a very honorable man, and a very talented and
intelligent investigator. He was in a position to know many things regarding fraud in both the
CCAP and the Medicaid funded programs at DHS due to his position as a forensic examiner of
digital devices seized during the many investigations conducted by units investigating fraud in
these programs. I have seen the results of the forensic exams conducted by Mr. Stillman and
others in his unit on CCAP fraud cases. I have not seen the results of any investigations he or his
unit conducted pertaining to Medicaid fraud. Based on the evidence I have seen that Mr. Stillman
and his group uncovered during their forensic exams on child care fraud cases, I believe
everything Mr. Stillman said in that hearing and in a subsequent interview by a local television
station. In my opinion anyone who claims that Mr. Stillman was making false statements on this
topic either has no knowledge of this situation, or is attempting to shift the focus of the
conversation away from a very serious issue.