State auditors say the state should do more to find improper payments to child care providers and work to prevent them from happening in the first place.
Auditors are questioning about $37 million, or about 10% of the $364 million in federal funds the state paid to child care providers last fiscal year, according to a report released Monday by the state auditor’s office.
That doesn’t mean $37 million was necessarily spent improperly on subsidized care for low- and middle-income families. Rather, it’s an estimate of costs that could be in doubt based on a random sample of payments audited that contained missing documentation, overbilling by providers, or other issues.
The findings arrive several months after heightened interest in child care spending amid a potentially multibillion-dollar fraud scandal surrounding social service programs in Minnesota.
The Trump administration froze federal child care funding to California, Colorado, Illinois, Minnesota and New York in the wake of the scandal. It has also proposed repealing a 2024 federal rule concerning provider pay. The rule requires states to pay child care providers ahead of time, similar to much of the private child care market, instead of after care is provided.
Postpayment problems
Washington auditors noted that the state Department of Children, Youth and Families doesn’t review documentation to verify that children attended care before it pays providers, instead checking a sample of payments after the fact. And according to DCYF’s own data, providers were overpaid in more than two-thirds of the cases it reviewed.
There are just six workers at DCYF who look at these payments after the fact, according to the audit report, for a system that handles hundreds of millions of dollars each year. Most of those reviews weren’t timely, the report said, taking place between six months and a year later.
In the most recent state fiscal year, which ended June 30, DCYF completed 2,228 audits and found overpayments in 67% of them, according to the report. The dollar amount overpaid to providers, about $2.2 million, represented 22% of the total dollars DCYF reviewed.
State auditors said DCYF should expand its postpayment oversight until the agency can put in place systems for monitoring payments before they go out. DCYF has said that it would need more money to increase the number of monthly provider reviews.
In a statement Wednesday, the state Senate’s Republican leader, John Braun, voiced skepticism about DCYF’s “excuse that it lacks the staff to fix this,” noting that the agency’s administrative and support divisions have added more than 500 people over the past five years.
Their 'government affairs' team has doubled to 22 people, yet they claim they can only afford six people to audit hundreds of millions in provider payments,” Braun said.
What auditors found
Monday’s findings were released as part of an annual audit required by the federal government.
Auditors selected a random sample of 59 payments to child care providers, out of nearly 400,000 made in the fiscal year. Auditors questioned about $6,100 made in 14 payments out of federal funds because records were missing, incomplete, weren’t supported by receipts, or because providers billed too much for services that weren’t supported by attendance records.
DCYF said it submitted payments flagged by auditors to a state office that claws back overpaid subsidy funds.
A full look
Washington combines funding sources from the state and federal government to pay for child care.
Since fiscal year 2021, DCYF’s accounting methods have not allowed auditors to track which funding source a payment came from. For that reason, auditors couldn’t verify whether the state was spending federal funds properly.
That doesn’t mean there was necessarily wrongdoing, but because the original funding source couldn’t be identified, auditors couldn’t determine if the state was complying with federal regulations.
But DCYF says it made changes that allowed for a full audit of the Working Connections program, the state’s child care subsidy for working parents.
A spokesperson for DCYF said Monday that the agency was committed to strengthening spending controls.
“To be clear, the agency has consistently met federal grant management requirements, and the federal audits of our programs have not identified any misuse of funds,” said spokesperson Nancy Gutierrez.
Prepayment
Still, auditors stressed that DCYF should take steps to scrutinize payments before they go out to providers. After payments are made, it costs the state money to audit, seek the money back, or investigate if there are indicators of issues like fraud, said Jim Brownell, assistant director of state audit and special investigations at the state auditor’s office.
One change the auditors suggested would be to link the state's system for tracking attendance to the system that handles payments, which are currently separate. Better integration would help the state monitor records before it issues payments, auditors said.
Gutierrez said DCYF agreed with state auditors on needing “an updated payment system and more staff to focus on prepayment and internal controls.”
“We look forward to exploring resources and opportunities to address these concerns,” she said.
Other issues
State auditors also found eight instances out of a separate group of 59 providers where DCYF licensers did not perform follow-up inspections of health and safety violations at child care facilities in the required time.
Depending on how severe an issue is, DCYF has five, 10 or 15 business days to check that the problem has been corrected. The department said that the number of licensed child care providers has grown by nearly 23% since the end of 2020, without a similar increase in the number of licensing staff.
On top of that, auditors found eight instances where the licenser didn’t complete health and safety items on an inspection checklist. DCYF said it would make needed adjustments to the system and provide more training to staff on the inspection process.
In one instance, federal funds were used to pay for care for someone who wasn’t eligible under federal regulations, a problem DCYF attributed to a coding error. The person was eligible for care paid for with state money.
However, DCYF is doing a better job assessing whether families are eligible for subsidized child care, Brownell said.
“Up until recently, they've had some serious problems with their eligibility (determinations),” Brownell said. “That's not the case anymore.”
Gutierrez said DCYF is also continuing to work with providers on submitting timely attendance records and collecting required signatures, and said any fraud concerns are forwarded to the appropriate state office to investigate.
Legislature eyes child care payments
Right now, the pay providers receive for serving kids on the state’s subsidy is connected to enrollment.
Under budget pressure, state lawmakers tied provider pay to children’s attendance, a move that is expected to save the state millions of dollars but could make providers’ income from the subsidy fluctuate and add administrative work.
In addition, lawmakers passed a budget that includes a provision requiring a legislative audit committee to review the state’s auditing and accountability practices.
The review can consider the system’s gaps and weaknesses, and options for boosting accountability and improving “stewardship of public funds.” A report is due to the Legislature in June of next year.
But other relevant bills did not get through, like legislation that would have required public entities that get public money, including child care providers, to hire a third-party auditor, and a proposal that would have permanently disqualified providers who commit subsidy fraud from getting licensed.
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