Investigators say she gave kickbacks to parents to participate in the scheme, and it was all caught on camera.
Parents picking up their children today at the Luna Park Daycare Center in Coney Island had, surprisingly, little to say about the arrest of the center's owner.
"It's shocking to here, but at the same time, am I really that surprised? Not really," said Melissa Manfredi, a parent.
But the Brooklyn District Attorney says the owner herself did plenty of talking on undercover videotape.
"So I will take only from the whole amount taxes because I have to pay taxes on every check and then we'll split half and half. Okay we'll split that," Liliana Godzhinsky said on undercover videotape.
Investigators say 63-year-old Liliana Godzhinsky can be seen in the video explaining how she'd divvy up the money they accuse her of stealing in a phony student scam.
"The defendant was billing ACS in her monthly attendance sheets and voucher forms for children who, in fact, never attended the daycare," said Chin Ho Cheng, the Assistant DA.
The DA alleges Godzhinsky fraudulently collected about $25,000, and $5,000 was paid to a woman who allowed the daycare owner to use her child as part of the scheme, though the child was never enrolled.
That unidentified mother is the confidential informant who recorded meetings with Godzhinsky.
In one of those meetings, the defendant can be seen handing the informant an envelope reportedly stuffed with more than a thousand dollars.
"Without her, we would not be here today," said Sean Courtney, the New York State Welfare Inspector General.
The investigation is continuing as the DA's office tries to determine whether a second daycare center owned by the defendant, or other parents, might be involved in the fraud.
"People would be very, very well advised to get an attorney if they think they're at risk," Brooklyn District Attorney Charles Hynes said. While Luna Park remains open for business, some parents are worried the problems may extend to their children.
"I just hope that her doing something underhanded there, she's not doing anything with the children underhanded," said Melissa Manfredi, a parent.