Three of those states paid $11,702 in childcare subsidies to our fraudulent providers, and two states allowed the  providers to over bill for services beyond their approved limit. The  system detected the discrepancy and successfully prevented  payment for these hours. Department of Human Services lost the fictitious parent’s  faxed application. Michigan, Texas, and Washington  conducted relative provider background checks using only state  conviction data, creating the possibility that a provider with a criminal  history in one state could be approved to care for children simply by  moving to another state. This creates the possibility that criminals, including  registered sex offenders, using stolen identities could obtain federal  subsidies to care for children. Case Studies Indicate That Child Care Assistance Programs Are Vulnerable to Fraud

Similar to our fictitious applications, we identified five closed criminal  cases in which parents and providers defrauded the CCDF program. The  parents and providers in these cases used similar methods to our proactive  testing including falsifying documentation to claim eligibility, billing the  state for fictitious children, and colluding to obtain payment for services  that were never provided. Both were  sentenced to 2 years in a state department of corrections jail. The five women billed for  fictitious children and children who attended school during the hours the  women claimed to be caring for them. During the daughter’s sentencing, the judge noted that the  program “was a joke with little if any oversight.”

	Eligible Children May Not Receive Child Care Services in Some States Because of Significant Waitlists

Not all eligible families that want to receive CCDF assistance are currently  able to receive it for a variety of reasons, and fraud and abuse in the  program may further reduce the availability of CCDF funds. This lack of  child care assistance forces some families to cut back on spending for  daily needs, working hours, and education. Of the 41 waitlisted parents we  interviewed, 16 described multiple hardships—facing financial difficulties,  quitting their job or education program, and worrying about negative  impacts on their children’s development. These  applicants expressed issues common to many of the parents we  interviewed. Mississippi used Recovery  Act funds to process all of the children on their waiting list, eliminating  7,000 individuals from the waiting list in April 2009. We suggested a number of actions  that HHS and states should consider to reduce fraud and abuse in CCDF  programs, including:     Require applicants, household members, and providers to submit Social  Security numbers in order to receive child care assistance. However, in some cases, officials  cited concerns about the cost and legal implications of increased  verification. For example, Texas expressed concern that conducting  fingerprint criminal history checks on providers would impose additional  costs on the program. Responding to our findings, HHS commented that they have recently taken  actions to address issues of CCDF integrity. The guidance also highlighted on-site visits to providers to review  attendance and enrollment records. Appendix I: Scope and Methodology

To proactively test selected states’ fraud prevention controls, we identified  26 states that received more than $100 million from the Child Care and  Development Fund (CCDF) for fiscal year 2009. Relative providers cared for 12 percent of children in the  CCDF program in 2008, while other types of providers accounted for the  rest. As such, our results cannot be applied to licensed child care  providers, such as child care centers, nor can our results be projected to  all state CCDF programs. To examine the impact of being unable to obtain child care on low-income  parents, we contacted officials in states and counties with active child care  assistance waiting lists to obtain names of parents currently eligible for  child care assistance. States’ CCDF implementation plans for fiscal year  2008 to 2009 identified 25 states that have processes to maintain some type  of waiting list when demand exceeds available funds.
Why GAO Did This Study

Through the Child Care and Development Fund (CCDF), the U.S. Department of Health and Human Services (HHS) subsidizes child care for low-income families whose parents work or attend education or training programs. In fiscal year 2009, the CCDF budget was $7 billion. States are responsible for determining program priorities and overseeing funds. Providers--who range from child care centers to relatives--bill the state for caring for approved children. Unregulated relatives represent 12 percent of providers in the CCDF program. In response to program fraud and abuse, GAO (1) proactively tested selected states' fraud prevention controls, (2) examined closed case studies of fraud and abuse, and (3) interviewed parents waitlisted for child care about the effect of this lack of assistance on their families. To do this, GAO investigators posed as parents and unregulated relative providers in 10 scenarios in five states with no waiting lists that each received more than $100 million in CCDF funding for fiscal year 2009. These states did not require fingerprint criminal history checks or site visits. For case studies of past program fraud, GAO reviewed criminal court records and interviewed agency officials. GAO spoke with parents on waiting lists in six states for their perspectives on the effect of being unable to obtain childcare. Results cannot be projected beyond these states or unregulated relative providers.

What GAO Found

The five states GAO tested lacked controls over child care assistance application and billing processes for unregulated relative providers, leaving the program vulnerable to fraud and abuse. Posing as fictitious parents and relative providers, GAO successfully billed for $11,702 in child care assistance for fictitious children and parents. In most cases, states approved GAO's fictitious parents who used Social Security numbers of deceased individuals and claimed to work at nonexistent companies. One state also approved a fictitious child care provider with a deceased person's Social Security number, creating the possibility that a criminal using a stolen identity could obtain federal subsidies to care for children. In two other states, GAO successfully billed for hours exceeding those authorized without submitting proof of additional hours worked. One state successfully prevented both fictitious applicants from being accepted, but had weak payment controls. GAO identified five recent closed criminal cases in which parents and providers defrauded the CCDF program. These cases involved parents falsifying eligibility documentation, providers billing states for fictitious children, and collusion between parents and providers to obtain payment for services that were never provided. Fraudulent payments reduce program funds available for eligible parents who depend on child care assistance to maintain employment or attend education programs. In some states, waiting lists are 1 to 2 years long. Parents on waiting lists said that without child care, they contend with multiple hardships--facing financial difficulties, quitting their job or education program, and worrying about negative effects on their children's development. In response, many of the states tested noted that they have plans to implement new controls, but expressed concern about associated cost and legal implications. HHS officials commented they have recently taken actions to address issues of CCDF integrity, including issuing program guidance on verification procedures and conducting conference calls on program integrity.