Day care operator heads to prison after misusing child care subsidy and concealing millions from IRS

WILMINGTON, Del. (AP) — A Delaware day care operator lauded by supporters as a “pillar of the community” has been sentenced to six months in federal prison after overbilling the government for taxpayer-funded child care and concealing millions of dollars in income.

Sentencing guidelines called for Brenda Mathis, 59, to spend two or more years behind bars. U.S. District Court Judge Richard Andrews imposed a much lower sentence Tuesday after hearing from several of her supporters.

“I think I would have given her more time before I heard from everybody,” Andrews said at the conclusion of Tuesday’s sentencing hearing. “This really is a serious crime.”

Among those seeking leniency for Mathis were former state treasurer Velda Jones-Potter and her husband, former state representative Charles Potter Jr.

“I know how good she is, her integrity, and we all have made mistakes,” Potter told the judge. His wife described Mathis as “the epitome of grace, humility and servant leadership.”

Others testified to Mathis’ work as a pastor and her “extraordinary community service,” including making her day care center available for community meetings and activities, offering money to people in need, and participating in food distribution efforts.

“I am remorseful,” a tearful Mathis told the judge. “I am asking you to have mercy on me.”

The judge declined requests by defense attorneys and supporters to sentence Mathis to probation, noting the seriousness of her crimes.

“There is some amount of, essentially, fraud that was going on,” he said.

Mathis is to report to prison on Nov. 6.

Mathis faced up to 45 years in prison after being indicted in 2021 on one count of wire fraud, one count of theft of government property, and three counts of tax evasion. She pleaded guilty last year to the three tax evasion counts, and prosecutors dismissed the other charges.

Prosecutors say Mathis inflated enrollment and attendance records for LJ’s Playpen Academy in Wilmington, Delaware, to increase subsidies and payments she received from two federally funded programs. The Purchase of Care Program helps eligible, low-income families pay for child care by providing subsidies to a day care provider of their choice. The Delaware Stars for Early Success Program disperses payments to day care providers based on the quality of service. Government subsidies pay for virtually all of the children who attend the daycare center.

Mathis, who has a series of federal tax liens dating to 2011, also underreported income from the day care center by hundreds of thousands of dollars each year from 2015 through 2017. According to court records, Mathis failed to report $2.2 million to her tax preparer or the IRS.

Prosecutors said Mathis was able to hide the money by incorporating LJ’s Playpen in 2015 and signing a new contract with the Delaware Department of Health and Social Services. Switching from a sole proprietorship to a corporation meant that the IRS no longer received 1099 forms for personal income tax from DHSS showing the amounts it had paid Mathis. Mathis also directed that federal funds she received after incorporating be deposited into personal bank accounts that she and one her sons controlled, instead of the day care center’s business accounts.

Meanwhile, Mathis was billing for services she didn’t provide. Prosecutors said the overbilling continued even after the DHSS audited her records and found that she was billing for children who either did not attend the day care center or attended less frequently than what Mathis reported.

The fraud scheme began to unravel in December 2017 after Mathis and her son walked into a Navy Federal Credit Unit branch carrying $520,000 worth of new $20 bills in a duffel bag. They deposited $20,000 into an account in Mathis’ name and $500,000 into an account in her son’s name.

Mathis told the bank teller that the money was her son’s inheritance from his biological father and had just been withdrawn from another bank. Investigators later executed a federal warrant and seized $418,133.55 from the son’s account that was directly traceable to withdrawals from an account in which Care Program payments had been deposited. The money that was seized will be applied to the $649,895 in restitution that Mathis was ordered to pay.

In court filings, prosecutors and defense attorneys redacted the amount of restitution Mathis owed, as well as other details about the payments she received and her tax liabilities. The information was unsealed after The Associated Press complained to the court about the improper redactions.