Investigators: The insider - KMSP-TV

Investigators: The insider

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Did a former government insider manipulate the system to cash in on millions of your tax dollars? FOX 9 Investigator Jeff Baillon has been digging for three months to uncover this story and found evidence of an extensive scheme to pocket huge sums of public money.

The small day care center in south Minneapolis was a cash cow.

Bank records obtained by the FOX 9 Investigators show it was raking in $75,000 a month in public subsidies. By the time it shut down after numerous licensing violations, it had burned through more than $2 million tax dollars.

Employee paychecks bounced and nearly $80,000 in state and federal taxes went unpaid.

Jeff Baillon: "Do you believe there's tax fraud that was going on here?"
Rahma Guled: "Yes."

Regulators are suspicious too.

We've learned that Soos Early Childhood Learning Center is currently under investigation. It was run by a former government insider.

Khadra Yusuf spent two years on the payroll with Hennepin County. Employment records we obtained show she was a human services representative. Her job involved signing up low-income people for various public assistance programs -- among them, free money for child care.

"I didn't know her," Rahma Guled told FOX 9.

Guled said she was approached by Yusuf to go into business together and open a day care, and she explained that Yusuf found the families to use the facility. At the time, Yusuf had left her job with the county. She already had contacts who qualified for government support.

"She is the one handling everything," Guled said.

This woman, Rahma Guled, says she was approached by Yusuf to go into business together and open a daycare. Their center would cater to families that got public funding to pay their child care expenses.

Jeff Baillon: Who went out and actually found the families to use the facility?"
Rahma Guled: "Khadra."

At the time, Yusuf had left her job with the county. She already had contacts who qualified for government support.

"She is the one handling everything," Guled said.

Guled said Yusuf took care of the paperwork to get the business up and running, then managed the daily operations while Guled came in to watch kids in the evenings.

Jeff Baillon: "Who did most of the hiring?"
Rahma Guled: "Khadra Yusuf."
Jeff Baillon: "and who did most of the bookkeeping?"
Rahma Guled: "Khadra Yusuf."

We interviewed three former employees of the center who repeated Guled's claims that Yusuf was in charge. They all mentioned something strange was going on. People they'd never seen work at the center were showing up to collect paychecks, and then one day, the county suddenly cut off funding to the business.

There were questions about bogus billings for child care.

We went to Yusuf's house to ask some questions.

Jeff Baillon: "Hi, I'm Jeff Baillon with FOX 9 News. I'm looking for Khadra."
Person at door: "She's not here."

The person who answered the door bears a striking resemblance to her.

Person at door: "Why do you need her?"
Jeff Baillon: "I wanted to talk to her about her business Soos Child Care."
Person at door: "That's not her business."

At first, the woman told me Khadra was her sister and didn't know when she would be home. Then, her story changed.

Woman at door: "She doesn't live here."
Jeff Baillon: "You're her sister?"
Woman at door: "No, cousin."
Jeff Baillon: "Cousin?"
Woman at door: "Just friend, not cousin."

After a few more questions...

Woman at door: "You're not welcome here."

It's not the first time that's happened while reporting this story.

"It's all about getting that money."

This woman, who asked that we not use her name, used to work in management for Deqo Child Care. This is the first time she's spoken publicly.

We told you about that company earlier this year after its three centers were raided by state and local investigators. Agents are still sifting through thousands of files, looking for evidence the company had fraudulently billed the government for millions of dollars' worth of child care.

"When I saw the bank account for the business, there were large withdrawals on a continuous basis," she said.

The former office manager and other former workers told us Deqo had a simple but lucrative business plan: Find women who qualified for taxpayer-funded child care assistance, offer them jobs to work at the centers, and then bill the government for watching their kids.

Jeff Baillon: Are they doing legitimate jobs?"
Former Deqo employee: "No. They're there to drink tea and socialize or go grocery shopping or do whatever they want to do."

Sometimes, she says, neither the moms nor their kids ever showed up -- but the county was still billed for child care time.

"It's a competition," she said.

95 new child care centers that are eligible to receive public funds have opened statewide since 2011. In the city of Minneapolis, they're sprouting like dandelions -- 23 new centers in 18 months.

Jeff Baillon: "Is there a competition going on between centers trying to get these moms to come there?"
Former Deqo employee: "Of course."

We're told by multiple sources that the more children a woman had to enroll for daycare, the more she was offered to be on the payroll.

Former Deqo employee: "If I walk into a center and I have five kids, I might be offered $12 an hour. But if I go next door I might be offered $14 an hour."

The more kids a center has, the more it can charge the government for child care subsidies.

Jeff Baillon: Do you have some sense of the magnitude of the problem?"
DHS Inspector Jerry Kerber: "We're not really sure how much there is."

Currently, there is no state system dedicated to tracking fraud involving child care providers.

"We've had systems in place for investigating recipient fraud, but not when it comes to the provider," Kerber said.

The state spends about $200 million a year to help low-income Minnesotans get child care. It's a big pie, and lots of people want a piece of it.

"What we see a lot of now are people who are applying for a license who don't necessarily have that background or any background at all caring for children, but they're applying for this license," Kerber said.

Opening a center is not just a matter of getting a piece of paper. There's an inspection to pass.

"They're manipulating the system."

This former manager says there's a network of families and friends who help each other get their centers going.

"They came and got stuff that was ours so they could pass their licensing inspection."

The FOX 9 Investigators watched as a man stopped by Deqo's Apple Valley center to get a portable sink to take to another center waiting to open.

"He came and got it because they didn't have one. And their inspection was the next day."

We've repeatedly contacted Deqo's owner to comment about the allegations of her former workers. She hasn't responded to our calls and email. Previously, she denied any wrongdoing.

Records obtained by the FOX 9 Investigators show 10 child care centers in Hennepin County had their funding stopped or suspended in the past 18 months because of irregularities in billing.

Jeff Baillon: "So you've turned records over to the county?"
Rahma Guled: "To the county, yes."
Jeff Baillon: "To help in their investigation?"
Rahma Guled: "Yes."

Rahma Guled says she didn't know her business was in trouble with regulators until it was closed down. She claims her business partner, Khadra Yusuf, had hidden records from her.

Jeff Baillon: "Did you fill out this document?"
Rahma Guled: "No, I didn't fill out."

The company's papers on file with the state had been amended to indicate Guled was the sole owner of the daycare -- that Khadra never had a stake.

Jeff Baillon: "And that's not your signature?"
Rahma Guled: "That's not my signature."
Jeff Baillon: "How do you spell your name?"
Rahma Guled: "Rahma."
Jeff Baillon: "And how is it spelled there."
Rahma Guled: "Rahama."

Who filled out these documents?

Yusuf has declined to be interviewed, but through a lawyer said she had nothing to do with it. She also claims to have never been an owner of the business or have a financial stake in it. Her role, according to her attorney, was "supervisor of caregivers."

We found she now spends a lot of time at another daycare center in south Minneapolis. That's her helping move in supplies before it opened a few weeks ago. What's her role there? Her lawyer says she doesn't have one.

The magnitude of daycare fraud in Minnesota is unclear. Some regulators estimate it could top $20 million a year. State lawmakers are starting to pay attention. They just approved funding for the Department of Human Services to hire eight people to investigate the problem.

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