Child Care Subsidies Fraud

The Department of Health and Human Services’ Child Care and Development Fund is a state aid program that subsidizes child care expenses for low-income working families with children. The federal government largely leaves it to the states to provide oversight for the CCDF program, which HHS estimates loses more than 10 percent of its funding in improper payments.

A new report from the Government Accountability Office shows widespread fraud by CCDF recipients in the sampling of states that it investigated:

Our proactive testing revealed that CCDF programs in the 5 states we tested were vulnerable to fraud because states did not adequately verify the information of children, parents, and providers and lacked adequate controls to prevent fraudulent billing. In 7 of 10 cases in four states, our fictitious parents and children were admitted into the CCDF program because states did not verify the personal and employment information provided by the applicants. 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. Only one state successfully prevented our fictitious applicants from being admitted into the program, but officials from that state told us they perform only limited background checks on providers and cannot immediately detect over billing.

The GAO’s findings can be summarized as follows:

• States lack effective controls to verify parent and child information, such as a parent’s income eligibility.
• States do a poor job of checking the backgrounds of providers, which mean subsidized child care could be being provided by sex offenders.
• States have weak controls to prevent fraudulent billing. Nonetheless, the GAO found numerous instances of delays in processing applications.

None of these findings are particularly surprising considering that government bureaucracies have little incentive to make sure funds are appropriately spent. The reason is simple: bureaucracies play with other people’s money and aren’t subject to competitive market forces.

When the government engages in “charitable” activities, it does so with money that it involuntarily obtains from taxpayers. In contrast, those who voluntarily donate to charities have an incentive to make sure their donations are properly used. If a charity does a poor job, donors have the freedom to turn to a different charity.

See this essay for more on the problems with subsidy programs administered by HHS, including the CCDF.