US Restricts State Childcare Payments on Minnesota Fraud Claims

(Bloomberg) — The Trump administration is increasing scrutiny of childcare payments to all states following allegations of fraud linked to daycare centers in Minnesota, expanding its efforts to identify any illicit activity in government programs.

The moves come as President Donald Trump has focused on fraud claims in Minnesota, in particular cases involving people of Somali origin and accused the state’s Democratic governor, Tim Walz, of mishandling government funding. The scrutiny on the state intensified in recent days following a viral video that purported to reveal fraud in daycare centers.

Most Read from Bloomberg

Jim O’Neill, the deputy secretary for the Department of Health and Human Services, said Tuesday night in a post on X that the US government was freezing all childcare payments to Minnesota, citing allegations that the state “funneled millions of taxpayer dollars to fraudulent daycares” over the last decade.

HHS is also requiring all states to submit a justification and receipt or photo evidence before payments are disbursed. “Funds will be released only when states prove they are being spent legitimately,” O’Neill said.

ABC and PBS separately reported that all states have been told to provide administrative data for federal review, and that childcare money would be paused until that happens. Minnesota and other states “suspected of fraudulent activity” would need to send even more data including attendance records and license and inspection reports before their funding is released. HHS didn’t immediately respond to a request seeking details of the reported pause.

Trump on his Truth Social platform on Wednesday, derided Walz as a “Crooked” governor. In a post that mocked US Representative Ilhan Omar, a Minnesota Democrat of Somali origin, the president alleged that “Much of the Minnesota Fraud, up to 90%, is caused by people that came into our Country, illegally, from Somalia.”

“Send them back from where they came, Somalia, perhaps the worst, and most corrupt, country on earth,” he added.

Walz and his team have accused Trump of needlessly politicizing the issue instead of working to address concerns.

“This is Trump’s long game,” Walz said in an X post on Tuesday. “We’ve spent years cracking down on fraudsters. It’s a serious issue — but this has been his plan all along. He’s politicizing the issue to defund programs that help Minnesotans.”

The moves by HHS follow an announcement by the US Small Business Administration last week that the administration is halting $5.5 million in annual funding to Minnesota “pending further review,” citing fraud allegations involving government loans. The Trump administration has repeatedly sought to withhold funding to Democratic-run states and cities.

Trump and allies have seized on the controversy to target the status of Somali refugees living in the state, part of a broader immigration crackdown. The president last month said he was revoking temporary protected status for Somali refugees living in Minnesota.

Earlier this week, Tricia McLaughlin, a Department of Homeland Security spokeswoman, said the administration is also auditing immigration cases involving migrants from certain countries — including Somalia — to determine if any individuals who obtained US citizenship through fraud merit denaturalization.

“We’re also not afraid to use denaturalization,” White House Press Secretary Karoline Leavitt said Wednesday morning on Fox News, amplifying that threat. “That’s a tool at the president and the secretary of State’s disposal, and it’s one this administration has previously used before.”

Leavitt called investigating fraud allegations a “top priority for this administration,” and said other states were also on officials’ radar, such as New York and California, though she did not detail any other specific fraud claims.

“The Department of Homeland Security is conducting door to door investigations on the ground at potential fraud sites, and they are also, of course, conducting continued deportations of illegal aliens in Minnesota’s communities,” she added.

The Minnesota nonprofit Feeding Our Future was at the center of the largest pandemic relief fraud charged in US history, according to the Justice Department. Dozens of individuals have been charged in connection with that case as of November.

–With assistance from Magan Crane and Laura Davison.

(Updates throughout to reflect additional nationwide restrictions.)

Most Read from Bloomberg Businessweek

©2026 Bloomberg L.P.