Numerous reviewers have spotlighted shocking welfare fraud perpetrated by members of the Somali community in Minnesota. Writing in the Wall Street Journal, Kim Strassel (“The Lesson of Minnesota’s Fraud”) recently described how “Somali fraudsters bilked taxpayers out of more than $1 billion” while arguing the policy lessons extend well beyond Minnesota’s border. She’s right about the big picture, even as billions more in fraud is uncovered and “fraud tourism” is added to our lexicon. The fraud in the Land of 10,000 Lakes stems not from the waters there, but from egregious flaws in the US welfare system. In too many ways, that system is designed to maximize federal spending and minimize accountability for results. That doesn’t absolve the Minnesota perpetrators, who deserve serious jail time. But it means that, unless addressed in Washington, the same flaws will continue to leave welfare programs across the nation open to abuse.
Not Just a Pandemic Problem
Before considering those systemic flaws or potential remedies, it is important to dismiss the argument some have made that Minnesota ripoffs were simply caused by the pandemic. Rep. Ilhan Omar (D-MN) specifically blamed the fraud on the poor design of pandemic benefit programs: “I just think that a lot of the COVID programs that were set up — they were set up so quickly that a lot of the guardrails did not get created,” she argued on CNN.
It’s objectively true that major programs created specifically in response to the pandemic featured few controls and even less common sense. For example, most federal pandemic unemployment checks initially exceeded paychecks, and millions were paid without confirming claimants’ identities or prior work history. Massive fraud and abuse predictably followed. Private-sector experts estimate that just unemployment benefit improper payments reached $400 billion, and the Biden administration admitted one pandemic program had a staggering 36 percent improper payment rate.
But the scandal-plagued Minnesota programs originated well before the pandemic. Ryan Thorpe and Christopher Rufo report the Feeding our Future program was founded in 2016 and received $3.4 million in federal funding in 2019—before the pandemic struck. Taxpayer spending subsequently exploded:
In the months after the Covid-19 pandemic began, however, the nonprofit rapidly increased its number of sponsored sites. Using fake meal counts, doctored attendance records, and fabricated invoices, the perpetrators of the fraud ring claimed to be serving thousands of meals a day, seven days a week, to underprivileged children. In 2021, Feeding Our Future received nearly $200 million in funding.
Thorpe and Rufo note stolen funds were used “to fund lavish lifestyles, purchase luxury vehicles, and buy real estate in the United States, Turkey, and Kenya.” Millions found their way to Somali terrorists, they add.
The grifters responsible took advantage of a major program weakness—full federal funding. As one review describes, the program was “Funded by the U.S. Department of Agriculture (USDA)” with money flowing “from the federal government to state agencies, such as the Minnesota Department of Education (MDE). State agencies then work with non-profit sponsors to administer the funds and oversee meal distribution sites.”
It’s easy to understand how limiting state “oversight” to how federal funds are spent discourages state officials from asking too many questions. As one account unsurprisingly noted, “Walz and his administration faced years of criticism for being slow to act despite red flags about the program.”
The timing of Minnesota’s fraud-riddled Housing Stabilization Services (HSS) program also preceded the pandemic. That Medicaid-funded program drew on authority offered by the Obama administration in 2015 and legislated by Minnesota officials in 2017. By the time the HSS program came online in June 2020, the pandemic was at its peak, yet Minnesota officials estimated the annual cost would be a modest $2.6 million. Instead, Thorpe and Rufo report that
Costs quickly spiraled out of control. In 2021, the program paid out more than $21 million in claims. In the following years, annual costs shot up to $42 million, then $74 million, then $104 million. During the first six months of 2025, payouts totaled $61 million.
Minnesota’s Department of Human Services ended the HSS program on August 1, 2025, pointing to “credible allegations of fraud.” The current First Assistant U.S. Attorney for the District of Minnesota, Joe Thompson, describes the “vast majority” of program spending as fraudulent.
In a December 18 press conference, Thompson displayed how skyrocketing spending on Medicaid services supposedly directed to children with autism in Minnesota followed the same extraordinary pattern. Meanwhile, Thompson’s office noted that program “providers” paid cash kickbacks to parents who enrolled their children, financed through “fraudulent billings to Medicaid.”
Thompson placed these scandals in their broader context, noting that “14 Medicaid services under audit and deemed ‘high risk’ for fraud have cost the state $18 billion since 2018.” He suggested that “half or more” of that could be fraud, indicating “a staggering industrial scale of fraud.”
The burden of those billions in losses extend well beyond Minnesota. Federal taxpayers covered nearly two-thirds (63 percent) of all Medicaid spending in Minnesota in 2023, with the state picking up the remaining 37 percent. Thompson stated the obvious—that Minnesota “has done not a good job of minding these programs.” Meanwhile the federal share of Medicaid costs is greater in some other states, leaving federal taxpayers there even more exposed to any fraud losses.
Deeper Problems in the Welfare System
In significant ways, blame for these scandals rests with the basic architecture of the welfare system.
The first and most obvious problem is there are simply too many federal welfare and related programs to administer efficiently or well. According to CRS, there are currently over 80 major federal means-tested benefit programs, depicted in the figure below prepared in 2015 by the House Ways and Means Committee:
That mind-numbing complexity has only gotten worse, with permanent programs growing in size and expense and an alphabet soup of temporary programs heaped on top during the pandemic.
Nominal spending on federal means-tested benefits grew 65 percent between 2015 and 2024, according to the Congressional Budget Office. The number of Medicaid and CHIP recipients rose from 70.4 million in January 2015 to a peak of 94.6 million in April 2023 before settling back to 77.3 million in August 2025. Annual federal food stamp spending totaled almost $100 billion in FY 2024, roughly double levels before the Great Recession, in real terms.
New temporary programs and massive benefit expansions during the pandemic offered waves of additional assistance for needy and non-needy families alike, including three rounds of stimulus checks, bigger food stamp benefits, unprecedented work-free child tax credits, extended, expanded, and far more widely available unemployment checks, and much more. Liberal lawmakers have introduced legislation to make permanent some of the now-expired pandemic expansions.
No one should be surprised that this vast system is a nightmare to efficiently administer and for needy individuals to navigate. That complexity, and the enormous scale of individual programs like Medicaid, invites fraud. Medicaid “is a trust-based system,” as one Minnesota investigator put it. “We do not have the staff…to be looking over everyone’s shoulder, verifying every attendance record, making sure that every bill that’s submit(ted) to us is appropriate.”
The web of programs also includes perverse incentives for individuals in need, like benefit cliffs that actively discourage work and marriage. A 2024 survey by the Sutherland Institute found that, of Utah adult benefit recipients, 43 percent admitted to having deliberately limited their household income to avoid losing benefits, including by turning down a raise or promotion or choosing not to get married.
Only a handful of programs expect anything of even able-bodied recipients, and among the few programs that do, loopholes are widespread. Dependence is also common. Only the Temporary Assistance for Needy Families (TANF) program applies a lifetime limit to its federally-funded benefits, and even that is undermined when states like California extend benefits using state funds.
Unsurprisingly, this system spends and wastes far too much, especially in federal funds. In FY 2025, federal means-tested benefits totaled an estimated $1.2 trillion, with state spending adding well over $300 billion more.
Massive amounts are lost to fraud. Across all federal programs, the nonpartisan Government Accountability Office estimates that federal taxpayers lose “between $233 billion and $521 billion annually to fraud” based on data from 2018 to 2022. Three of the four programs with the biggest losses are means-tested: Medicaid lost $31 billion in FY 2024, the Earned Income Tax Credit squandered $16 billion, and food stamps lost $10 billion. Only Medicare, at $54 billion, lost more.
Reviewers recognize the Minnesota scandals as indicators of deeper issues. Wall Street Journal columnist Kim Strassel suggests the Minnesota scandals are fundamentally “a story of broken welfare. Of a federal government that shovels more than $1 trillion annually into more than 80 major ’antipoverty’ programs (and countless minor ones)—a system too complex to ensure even basic integrity.” Political commentator Victor Davis Hanson adds, “I think the whole welfare state is vestigial, ossified, calcified, that if somebody just kicked it, it would fall apart. Nobody wants it anymore. It has to have some free market substitute, incentives.”
Fundamental Reforms Are Needed to Stem Abuse
What should lawmakers do about this enormously complicated system that wastes too much, as dramatically evidenced by Minnesota scandals?
The first change should be to cut the number of programs and consolidate federal funding into more easily administrable, and preferably fixed, portions. Republicans in the 1990s contemplated collapsing funding for hundreds of programs into eight block grants addressing low-income families’ need for cash, health coverage, food, housing, and other assistance. But the 1996 welfare reform law replaced just one program, the New Deal-era Aid to Families with Dependent Children (AFDC) program, with the current Temporary Assistance for Needy Families block grant.
The TANF program now provides states fixed federal block grant funding instead of former open-ended entitlement funds that rose whenever welfare caseloads grew, and invited greater dependence and fraud. The switch to block grant funding fundamentally altered the program’s financial incentives, driving states to discourage unnecessary benefit takeup and focus on preventing abuse. Work requirements and time limits contributed, but the block grant has played an unheralded role in reducing dependence and abuse. The same dynamic could be repeated by converting more programs into fixed block grants covering other broad purposes.
A second, and closely related, change should shift more funding responsibility—and thus direct financial concern about fraud—to states. States will argue they can’t afford that, especially under current program terms. But history shows block grants and related changes cause caseloads and benefit costs to drop substantially, making any new state responsibilities more manageable. After the 1996 reforms, the TANF program’s caseload fell by 85 percent as more parents left or stayed off welfare in favor of work. As a result of the fixed TANF block grant, that caseload decline has translated into an almost 250 percent real increase in federal funding per TANF recipient. States have billions in unspent federal funds and have been able to shift other program funds to complementary needs like child welfare, childcare, and work-supporting tax credits.
Lawmakers also could adopt proposals from the 2022 volume American Renewal that would give states credit when increased work by benefit recipients leads to greater earnings and federal tax credit payments for families. That would limit state costs while offering a strong financial incentive for better outcomes.
A third set of changes would expect more accountability from individuals and states administering benefits. The most obvious need is for more recipient engagement in work and training, which is already expanding under the One Big Beautiful Bill. Such changes have strong parallels in 1996 reforms, which were followed by remarkable improvements. As I described on their 25th anniversary, after those reforms
welfare caseloads plummeted as millions of mothers left or stayed off the welfare rolls in favor of work. In just the five years after August 1996, the number of families on welfare dropped over 50 percent. Aided by a strong economy, the share of never-married mothers (the group most likely to go on welfare) who worked rose almost 40 percent over the four-year period beginning in 1996…. As a result, earnings rose sharply while poverty plunged.
As the Congressional Budget Office noted in 2007, “Between 1991 and 2005, household earnings doubled (on average) in female-headed low-income households,” with the change “driven by a large increase in earnings during the late 1990s”….By 2002, even the New York Times admitted “Welfare reform has been an obvious success.”
More able-bodied adult benefit recipients can and should be expected to engage in at least training to improve their job skills or volunteering to improve their community. Individuals and communities would benefit, and it would be harder to get away with no-show benefit abuses.
Additional accountability measures could include lifetime limits on key benefits, especially for able-bodied adults. In major programs, long-term dependence is now the norm even among able-bodied adults. Sixty-three percent of non-elderly, non-disabled adult recipients now collect public housing assistance for a decade or longer. A recently released report finds almost half of all food stamp recipients in 2017-2018 (the most recent years reviewed, when the US unemployment rate averaged 4.1 percent) received assistance for over 20 out of 24 months. Exceptions should apply for the disabled, but the goal for most able-bodied adults should be to work and support themselves instead of depend on taxpayers for extended support. Identifying and eliminating fraud and abuse would be an important side benefit.
Ending Welfare as We Know It, Again
A generation ago, President Bill Clinton promised to “end welfare as we know it.” When he initially failed to deliver on that pledge, Republicans seized the initiative and passed major reforms Clinton ultimately signed into law. That law is remembered for its work requirements and the dramatic welfare caseload declines that followed.
The 1996 reforms also included numerous measures designed to stem significant waste, fraud, and abuse. Before 1996, immigrants collected billions in welfare despite pledging not to as a condition of entry into the US. Children were encouraged to act up in school to qualify for federal benefit payments. Drug addicts and alcoholics received regular disability checks, which for too many simply perpetuated their addictions. And benefit program rules depended on inmates to report their change of address to jail so that their disability checks would end. Bipartisan majorities recognized and more importantly passed major legislation fixing those and other program flaws.
Those reforms worked better than anyone expected, even as they left most of the welfare system intact. That system has grown significantly since, and Minnesota scandals demonstrate how it remains open to major fraud. The good news is that lawmakers have a policy playbook that features reforms like the ones described above that have a proven track record of reducing unnecessary spending and abuse in part of that system. Replicating those reforms across other programs would better insulate taxpayers against abuse while protecting the interests of deserving recipients. Lawmakers looking for a policy agenda for the new year should seize this opportunity to make much-needed reforms.