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If its as bad as it looks, I have to imagine it started off at relatively small scale. Register a few extra kids who aren't actually there, have enough kids around to look legitimate. And if that passes muster, or you notice that the inspectors are lax or nonexistent, scale it up. After a year you have a hundred kids registered and you don't even bother to have them show up.
THEN, you tell your friends about it, and they also try the scam, and it presumably works for them, so they scale it up. And now there's a repeatable business model that can be transmitted easily.
Now its basically organized crime.
Which, I've pointed out before, is a feature of pretty much every group that immigrates here en masse. The Irish, the Italians (obviously), Russian, on and on. Thankfully this isn't a particularly violent mafia, but its the same flavor of "insular community develops a criminal element that springs up from their communities" type development.
Italian organized crime didn't rely on tribal loyalty among Italians (or even Sicilians) to keep things under wraps; it relied on that old standard of violence towards anyone who opened their mouth.
Presumably quite a bit of both.
Al Capone was famously very charitable and generous in his community.
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