A lot has been made of the Nick Shirley videos claiming to “prove” that dozens of companies owned and allegedly operated by Somalis as daycare centers were involved in defrauding the federal government out of hundreds of millions of U.S. taxpayer dollars. And although these videos show numerous daycare facilities with boarded-up windows, broken doors, untreated snow-covered sidewalks and parking lots, no operating phone numbers, no playground equipment, and most importantly zero children at them during regular working hours, this circumstantial evidence only lays the groundwork for identifying hundreds of potential fraudsters.
The corporate media, Minnesota Gov. Tim Walz, and other leaders on the American left have dismissed Shirley’s videos as unsubstantiated propaganda and/or “racist,” but in fact prosecuting those involved with these sham daycare centers should be relatively easy, using an assortment of readily available financial records.
Bank Records
It is undisputed that Somali daycare centers received millions of federal dollars either directly or through various state-sponsored programs funded by federal grants. And since either Minnesota or the federal government made ACH or other electronic payments directly to these businesses, they already know which business bank accounts to pursue.
By now, the Department of Justice should have issued federal criminal subpoenas for records related to all these accounts. And since banks are typically required to respond to criminal subpoenas within 1 to 2 weeks, the feds already should have lists of which business entities were paid, their business type (C-Corp, S-Corp, LLC, general partnership, etc.), their employer identification number, and lists of authorized account signers. With this data and the accompanying monthly bank statements, tracing disbursements from these business accounts will be the next phase of any investigation.
Of course, if large transfers were made to other bank accounts, the DOJ should repeat the subpoena process until all disbursements are found. If these efforts uncover large cash withdrawals from these accounts, this would indicate large-scale fraud, since legitimate businesses operating in present-day America pay almost all operating expenses electronically or by bank ACH — never by cash. If these centers used paper checks, information regarding who was paid and how much would be readily discernable from copies of cancelled checks.
Employer Tax Filings: Forms W-2, 941, and 1099
In order to have billed the government millions for childcare, all these daycare facilities had to have employees or contractors, because Minnesota mandates strict adult supervisor/child ratios.
Under these rules, the maximum ratio for infants per adult is 4:1, for toddlers it’s 7:1, and for preschoolers it’s 10:1. Consequently, a center would need 77 full-time attendees, active for 12 consecutive months, to achieve a $1 million annual bill rate, based on the average daycare cost ($1,094 per month) per a 2024 study by Child Care Aware of America. And under Minnesota staffing regulations, the center would need eight to eleven full-time adult employees to achieve $1 million of annual revenue.
We can do similar calculations for if the center caters exclusively to infants, which are billed at a higher rate.
We can also pull employer tax filings for the duration these businesses were receiving funds from the government. Under federal employment law, any business with a W-2 employee must file Form 941 quarterly. This tax form lists all employee names, their Social Security numbers, the total Social Security and Medicare wages paid to each employee, the total number of employees paid, and the amount(s) of federal income and FICA taxes withheld during each reporting period. And if these centers failed to file Form 941, hefty IRS fines would be due.
But, if these centers willfully failed to file these employer forms, the failure to file becomes a criminal misdemeanor, punishable by a fine of up to $25,000 ($100,000 for a corporation) and up to one year in jail per violation. And if the business entity failed to file these forms to conceal a larger fraud, noncompliance becomes a felony tax evasion case. In such cases, penalties escalate to a $100,000 fine ($500,000 for a corporation) and five years in prison per count.
In addition to the employer filings, each employee must receive a W-2 form annually. Moreover, the willful failure to provide said form to an employee could result in an additional fine of up to $630 per occurrence, without a cap. And if these daycare centers used contract labor, they would be required to file Form 1099 annually for each contractor who received more than $600. Again, if these centers operated using contract labor and willfully failed to issue W-9s, they would also be fined up to $630 per missing form, without limit. All of this data should be subpoenaed as well.
If these daycare centers were legitimate, they must have employees. And we would now have two data sources to prove if employees existed. First, payroll data showing payments either directly to employees or through a payroll processing agency, both easily identifiable from disbursements on the monthly bank statements. Second, the federal tax filings showing who was paid what and what FICA taxes were withheld.
If there were no employees, fraud occurred. If there were employees, did the proper federal tax filings occur? If not, even a mediocre federal prosecutor fresh out of law school should have little problem achieving a tax fraud conviction.
Daycare Center Tax Returns and Owner Personal Tax Returns
Based on numerous public reports, it appears that many of these Somali daycare centers were registered as Limited Liability Companies (LLC). If the center was owned by a single-member LLC (a disregarded entity), then the individual owner’s personal tax return should show all the revenues received from various government payouts, and all expenses related to the operation of the daycare center. Conversely, if the business was set up as general partnership, multi-member LLC, or as a S-Corporation, then each of the owners should receive a form K-1 designating their share of all revenues and expenses equivalent to their ownership interest.
Given the federal government knows what each of these daycare centers were paid, there should be absolute congruence between revenues reported on the daycare center’s tax return and what was reported on the individual owner’s tax returns. And although none of us are privy to what if any tax information was filed with the IRS, based on video evidence posted by Shirley, in conjunction with the complete disrepair of some of these facilities, it appears highly likely many of these entities never filed business tax returns and/or that the individual owners failed to report government-paid revenue on personal tax returns. The DOJ should by now have subpoenaed all business and individual tax filings of the owners, as this will likely be a treasure trove of data for numerous tax evasion cases.
Minnesota Daycare Licensing Requirements
If the daycare centers were legitimate, then various state records would exist for each employee. Specifically, under Minnesota statute 245C.03, all people in contact with children would need to complete an extensive background check. Additionally, statute 2045C.05 requires each childcare worker to submit fingerprints and photographs to complete their background checks. Since all such records must be maintained by the Minnesota Department of Human Services, all this data is subject to subpoena, and the ability of federal regulators to cross-reference this data with federal employee and employer tax filings becomes paramount — any discrepancies or incongruities in this data would further suggest widespread fraud.
Minnesota also has various staff qualification requirements under state administrative rules parts 9503.0030 through 9503.0034. It requires various credentials, education, and hours of experience for childcare directors, teachers, assistant teachers, aides, and volunteers. This data must be scrubbed for its authenticity. Again, any discrepancies between this data, employee background check data, and federal employer tax filings would serve as grounds to press for various tax or wire fraud charges.
Minnesota also has facility size requirements — each facility must maintain 35 square feet of indoor space per student in attendance (section 9503.0155 Facility subsection 9). This requirement excludes common spaces such as hallways, closets, utility rooms, bathrooms, and kitchens. Given the apparent small building footprints of many of the alleged daycare centers observed in the Shirley videos, it is highly likely that most of these facilities were not large enough to accommodate the number of children the centers billed the government.
Additionally, Minnesota requires outdoor space of at least 1,500 square feet with at least 75 square feet of space per child when in use (section 9503.0155 Facility subsection 7). And given that many of the facilities seen in the Shirley videos lack any outdoor accommodations or playground equipment, these discrepancies, along with other licensing requirements irregularities, could open a Pandora’s box of legal problems for employees at the Minnesota Department of Human Services and for the executive offices of Gov. Walz.
Utility Records
Most frauds start small. Once the perpetrator realizes they are “able to get away with it,” the natural inclination is to increase the size of the fraud. This fact has been documented in various academic studies, including the development of “The Fraud Triangle,” the seminal work of criminologist Donald Cressy in his 1953 book, Other People’s Money: A Study in the Social Psychology of Embezzlement. This phenomenon is likely to be have been repeated in the case of Somali-run daycare centers.
It is likely many of these fraudulent daycare centers started billing the government for just a few attendees per month, perhaps five to 10 in the initial stages. Over time, the level of fraudulent billing likely increased, perhaps to 20-25 students, then to higher numbers, before reaching a pinnacle — the maximum number of students permissible at a daycare center under state spacing rules and permitted by local fire codes.
Of course, government billing records will show the number of children “who attended the center” each month. Knowing this information, investigators must subpoena monthly water bills to obtain water usage totals. Unlike electricity, where a room will use basically the same power load if it is occupied by one or 20 people, there is always a correlation between water usage and the number of people in a building. Simple logic dictates this — people drink water, wash their hands, and flush toilets. And in the case of daycare centers, more attendees results in increased food preparation, more cleaning, and higher water usage levels. Water bills must show a correlation between usage and the number of children billed. Furthermore, water usage rates at these facilities should approximate the water usage at other, legitimate daycare centers of similar sizes. And if they do not, you have additional evidence to support widespread overbilling by these daycare center owners.
On New Year’s Eve, Nasrulah Mohamed, the “manager” for the Nokomis Day Care Center in Minneapolis, went before the national news media to claim his facilities’ employee and attendance records had been stolen from his center. Even if his story is true, it does not matter. There are hundreds of government documents and federal tax records that must be subpoenaed and cross-checked. An audit will likely uncover thousands of examples of embezzlement, theft of government property, tax evasion, and wire fraud — just to name a few.
Certified public accountants and certified fraud examiners at the DOJ are likely to be gainfully employed for many years, thanks to the mismanagement and incompetence of Gov. Walz and other elected officials.
