The real reason behind Minnesota’s Somali fraud scandal
A few weeks ago, YouTuber Nick Shirley released a viral video in which he claimed to be investigating day care reimbursement fraud in predominantly Somali neighborhoods of Minneapolis. The claims in Shirley’s video about specific day care centers not providing child care were incorrect, according to subsequent reporting by local media. But it is true that reimbursement frauds similar to the ones Shirley claimed to unearth have occurred in the Minneapolis area over the last decade, resulting in a bizarre and stupid public discourse about what this all means for the welfare state, immigration, and even the culture of pastoral peoples.
These various Minneapolis reimbursement frauds have been grouped together ostensibly because they were all perpetuated by Somali immigrants. This is not actually true: The biggest of these frauds — a $250 million scheme in which an organization called Feeding Our Future received funds for meals it never provided — was led by Aimee Bock, a white woman.
A New York Times article covering the scandal opined that “The episode has raised broader questions for some residents about the sustainability of Minnesota’s Scandinavian-style system of robust safety net programs bankrolled by high taxes. That system helped create an environment that drew immigrants to the state over many decades, including tens of thousands of Somali refugees after their country descended into civil war in the 1990s.”
The Minnesota welfare fraud story isn’t an immigration story or a story about an excessively generous welfare state. Rather, these thefts were the predictable result of a public policy decision to embed middlemen throughout our welfare system. Like many frauds that pop up all across the country and the welfare state, the Minnesota day care schemes all occurred in programs where a private provider acts as a middleman between the government and individuals.
This outsourcing approach to welfare policy is inherently vulnerable to fraud. The way these outsourcing programs work is that the government gives money to a private entity, and then that private entity is required to use it to provide services to individuals. Any money not spent on the services is kept as profit.
The problem with this structure is fairly obvious: If profits are just the inverse of the money spent on providing services, then the best way to increase margins is to spend as little as possible on providing services.
The main strategy for boosting profits in this way is to degrade the quality of the services provided. A landlord renting housing to a Section 8 tenant can maintain the unit poorly. A child care center serving a Child Care Assistance Program-eligible kid can serve cheaper food or buy fewer toys.
Yet, the best profit-maximizing strategy is to simply spend nothing on services by not providing them. After all, reimbursements for services not provided flow to the private middlemen as pure profit.
A few dozen Somali immigrants in Minneapolis were not the first people to figure this out. You can find fraud like this in every program that has this middleman structure.
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