Twelve Arrested in San Diego $10M Ghost Daycare Subsidy Fraud

Twelve individuals face federal charges after investigators uncovered over $10M stolen from childcare subsidy programs via fake home daycare operations in San Diego.

Fake Daycare Operations in San Diego Drained $10M in Federal Childcare Funds

Twelve individuals have been charged with federal fraud after investigators determined that more than $10 million in government childcare subsidies was diverted to fictitious home daycare providers in San Diego, DOJ Justice News reports.

In a coordinated early-morning operation on Thursday, more than 250 federal, state, and local law enforcement officers arrested all 12 defendants and executed search warrants at residential properties that had been registered as licensed daycare facilities. The defendants are naturalized U.S. citizens and Lawful Permanent Residents originally from Syria, Somalia, Sudan, Afghanistan, and Iraq.

How the Scheme Worked

The U.S. Department of Health and Human Services provides federal funding to California to subsidize childcare costs for low-income families. In San Diego County, two organizations — Child Development Associates (CDA) and the YMCA — administer those subsidy programs. When a family qualifies, CDA or the YMCA pays the childcare provider directly, based on monthly attendance records the provider submits. Those records must be signed by both provider and parent under penalty of perjury and must document the specific dates and times care was given.

California law additionally requires licensed providers to be present at all times children are in care, with narrow exceptions when a qualified substitute is on site.

The 12 federal complaints are legally separate, but the underlying method was consistent across all cases. Each defendant obtained a California license to run a home childcare facility and registered with CDA and the YMCA to serve subsidized families. They then submitted monthly attendance records that falsely claimed care had been provided on dates and at times when no childcare actually took place — certifying the records as accurate under penalty of perjury. CDA and the YMCA, relying on those documents, issued payments drawn from federal funds.

Surveillance Footage Contradicted Claims

Investigators used surveillance recordings to document the gap between the defendants' claimed attendance figures and what actually occurred at their facilities. In one complaint, Abdulrahman Ayman Alawad submitted records stating he had provided childcare to 23 children in March 2026 and 25 children in April 2026, with care recorded every day of both months. Surveillance footage spanning 57 days during that period showed children entering or leaving the facility on just one occasion — the same day a state inspector arrived unannounced, after which both children and Alawad himself appeared at the property following the inspector's arrival.

Border crossing records added another layer of evidence. Alawad and several other defendants submitted attendance records claiming to have provided childcare at their homes on days when entry and exit records show they were not physically present in the United States.

Official Statements

"These charges underscore a simple truth: anyone who steals from programs meant to support children will face swift and uncompromising accountability," said Assistant Attorney General Colin M. McDonald of the Justice Department's National Fraud Enforcement Division. "Fraud against these programs is an attack on vulnerable families, and law enforcement will continue to dismantle schemes that exploit them."

U.S. Attorney Adam Gordon for the Southern District of California described the arrests as the first of their kind since the creation of the National Fraud Enforcement Division. "These fraudsters may have criminally gamed the system before," Gordon said. "But today, the game is over."

IRS Criminal Investigation Chief Jarod Koopman said the investigation followed financial patterns that revealed "twelve ghost daycare operations billing for children who were never present." He characterized the fraud as not victimless, arguing it deprived working parents of critical support and damaged trust in programs designed for vulnerable families.

Assistant Director Michael Krol of Homeland Security Investigations, whose agency participated in the operation, said HSI is committed to "identifying and disrupting schemes that steal taxpayer-funded benefits from the communities they are meant to serve." Special Agent in Charge Robb R. Breeden of the HHS Office of Inspector General added that the attempts to steal childcare funds "endanger support for some of our nation's most vulnerable children."

Agencies Involved

The investigation was carried out jointly by Homeland Security Investigations, IRS Criminal Investigation, and the HHS Office of Inspector General, alongside state and local law enforcement partners in the Southern District of California. The cases are being prosecuted federally, with each of the 12 defendants facing separate complaints tied to the same underlying fraud pattern.

Source: DOJ Justice News