Tag: fraud

Alot 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.

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