WASHINGTON, D.C. January 2, 2026 – In a bold move to combat what officials describe as widespread fraud in Minnesota’s government-funded programs, U.S. Department of Health and Human Services (HHS) Deputy Secretary Jim O’Neill stated that the federal government will withhold new funds from the state until assurances of no ongoing fraud are met.
During an appearance on Fox News, O’Neill emphasized the department’s commitment to halting the flow of taxpayer dollars into potentially corrupt systems. “We aren’t gonna spend money on Minnesota until we are confident there is no fraud,” O’Neill said in the interview..He highlighted ongoing investigations into Medicaid and childcare programs, noting that HHS is simultaneously pursuing recovery of misappropriated funds while preventing future disbursements.
The statement comes amid escalating scrutiny of Minnesota’s administration of federal aid. O’Neill referenced a letter sent by Dr. Mehmet Oz in early December to Minnesota Governor Tim Walz, demanding a corrective action plan for Medicaid fraud. The state submitted the plan just days ago, which HHS is now reviewing. “We are gonna make sure that the state of Minnesota and Governor Walz is held accountable for ensuring there is no fraud, both looking backwards and forward,” O’Neill added, extending the crackdown to childcare initiatives by requiring detailed receipts and audits.
This freeze specifically targets childcare payments, where HHS provides Minnesota with approximately $185 million annually through the Child Care and Development Fund (CCDF). Allegations of fraud in this sector gained national attention following a viral investigative video by journalist Nick Shirley, which exposed purported schemes involving fake daycares siphoning millions in taxpayer funds over the past decade. O’Neill cited these reports as a catalyst for the action, stating, “We have turned off the money spigot and we are finding the fraud.”
The decision is part of a broader federal response to Minnesota’s fraud scandals, which have included convictions related to defrauding child nutrition programs and housing assistance. Senate Republicans, including Sen. Jim Banks (R-Ind.), have amplified calls for deeper probes, urging HHS to investigate Somali networks allegedly involved in the schemes. Meanwhile, officials from the Department of Homeland Security (DHS) have joined the effort, conducting on-site investigations in Minneapolis.
Critics worry the funding pause could impact legitimate childcare providers and families relying on these services. However, O’Neill assured that the measures are temporary and aimed at rooting out abuse to protect vulnerable populations. “We’re also trying to stop new money from going out at the same time as the investigation,” he explained.
The Trump administration’s aggressive stance on fraud has ripple effects beyond Minnesota, with New York Republicans now calling for similar audits in their state following these revelations. As investigations continue, HHS officials say they remain committed to transparency and accountability, demanding proof and receipts to resume payments.
This development underscores ongoing tensions between federal oversight and state management of welfare programs, with potential implications for similar crackdowns nationwide.
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