Minnesota’s “Industrial-Scale” Fraud is a Wake-Up Call for Welfare Reform

Governor Tim Walz (D) of Minnesota has made the decision to withdraw from his reelection campaign amid a series of “industrial-scale” fraud scandals. While the full extent of losses to taxpayers still isn’t known, federal prosecutors estimate that the Medicaid-related scandal alone could surpass $9 billion, drawing intense national scrutiny and impacting the state’s political landscape. It’s long past time for accountability for the politicians and bureaucrats who allowed this mess.

A viral social media video by YouTuber Nick Shirley exposed a massive fraud scheme in Minnesota in late December 2025, involving federal and state aid programs that were abused and from which funds were stolen. While Shirley directed the focus of his investigation toward childcare centers that didn’t actually care for children, a variety of taxpayer-funded programs in Minnesota—including autism centers and non-emergency medical ride services for the elderly—have also been defrauded. 

The House Committee on Oversight and Government Reform held a hearing on January 7, 2026, to examine the Minnesota fraud scheme. David Williams, President of the Taxpayers Protection Alliance, called for transparency and accountability ahead of the hearing:

“Minnesotans were told these programs were carefully run and targeted to help the most vulnerable members of society. They were not. These brazen scandals expose federal and state leadership that failed at basic oversight and tried to ignore the issue until it went away. Now, taxpayers are left footing the bill for widespread fraud that should never have happened, while key leaders, such as Governor Tim Walz, refuse to testify. This is completely unacceptable.”

In addition to the scandalous payments to phony childcare centers, the scale and extent of the fraud highlight the urgent need for Medicaid reform. The national program lacks sufficient oversight, exposing taxpayer dollars to potential fraud, waste, and abuse. One major issue with Medicaid, which is jointly financed by states and the federal government and administered by states, is that the federal government’s role has grossly expanded and lacks oversight. Under the Affordable Care Act (ACA), the federal government paid 100 percent of the cost of expansion coverage for patients under Medicaid from 2014 to 2016. By 2020, the federal government reduced funding to 90 percent of new enrollee costs, with states paying the remaining 10 percent. Even with the federal phasedown, overall Medicaid expansion has opened the floodgates to fraud, waste, and abuse of taxpayer dollars. According to the Government Accountability Office, Medicaid is a significant driver of “improper payments” with faulty payment rates eclipsed only by Medicare.

Waste and abuse in the welfare state aren’t limited to Medicaid. The General Welfare Clause (Article I, Section 8) of the U.S. Constitution, which reads: “The Congress shall have the Power to lay and collect Taxes … to pay the Debts and provide for the common Defence and general Welfare of the United States,” has been grossly misinterpreted. As Cato’s Institute’s vice president for legal affairs, Roger Pilon, notes, “the Constitution was written and ratified to both authorize and limit the government created through it. It was designed to do the latter, not through the Bill of Rights — that was an afterthought, added two years later — but through the doctrine of enumerated powers. Article I, section 8, grants Congress only 18 powers. Nothing for education, or retirement security, or health care: Those responsibilities were left to the states or to the people, as the Tenth Amendment makes clear.”

Today, the federal government spends more than $1 trillion per year on more than 134 different welfare programs. The federal government must significantly reassess the scale of these programs and embrace an approach consistent with the Constitution that limits bureaucracy and keeps waste and fraud at bay. Hopefully, “industrial scale” fraud is a wake-up call for policymakers to protect taxpayers and limit government.