FILE - Minnesota State Capitol

Inner dome from the rotunda floor of the Minnesota State Capitol.

For several reasons, Minnesota’s Child Care Assistance Program (CCAP) is rife "with a higher risk of errors, improper payments, and fraud,” a recent state auditor’s report concluded.

In response to a request from several legislators, the Office of the Legislative Auditor (OLA) conducted a limited scope review of the Department of Human Services’ (DHS) internal controls for CCAP and found that its “controls are insufficient to effectively prevent, detect, and investigate fraud.”

The DHS “did not implement sufficient program integrity controls for licensing child care providers,” the legislative auditor reported, and “lacked some key controls to identify errors and to inhibit, track, and recover improper payments.”

CCAP is authorized and supported through block grants from the federal Child Care and Development Fund.

In Fiscal Year 2018, 4,549 childcare providers received at least some CCAP payments to provide services to nearly 120,000 children. Total CCAP payments to these providers were estimated at approximately $254 million.

The auditor reviewed federal and state legal requirements and DHS policies, processes, and guidance to local human services agencies, and interviewed representatives from several government agencies in addition to reviewing documents and data to produce the report.

“We found weaknesses in DHS’s program integrity controls and concluded that both DHS and local human services agencies must do more to effectively prevent, detect, and investigate fraud in CCAP,” James Nobles, the state’s legislative auditor, said in the agency’s report.

“The results of the OLA audit are troubling but not surprising,” state Sen. Mike Goggin, R-Red Wing, said. “According to the person in charge of investigating Minnesota’s Child Care Assistance Program, the fraud is pervasive. He even agreed with [a] whistleblower’s assessment that fraud could be in the range of $100 million per year. We will use this report as a road map to provide badly needed oversight and accountability over CCAP, because the Department of Human Services just isn’t getting the job done.”

Jay Swanson, manager of CCAP’s Investigations Unit, said fraud is pervasive and estimates it reaches the $100 million range, or half of the $217 million paid to childcare centers in 2017.

OLA reported a complete breakdown between the DHS Inspector General Carolyn Ham and CCAP investigators. Jim Nobles, from the legislative auditor's office, described to a legislative committee in March the “total alienation” between the two offices.

According to Swanson, a large-scale overbilling scheme involves some of the 50 highest-paid childcare centers, who collectively billed more than $76 million in one year, with the average payment hovering around $1.5 million. The remaining 1,043 centers received just over $141 million with an average payment of $135,349.

CCAP fraud is a criminal act that involves family members or providers – or both working together – who knowingly or willfully commit actions with the intent to wrongfully obtain financial assistance to which they are not entitled.

The audit found that the DHS and county agencies “did not sufficiently leverage independent, external data sources to verify recipient eligibility for CCAP,” and weak processes existed debilitating the state’s requirement to validate CCAP provider billings against actual childcare provided.

“Every day that bureaucrats ignore the fraud problems in the child care assistance program, Minnesotans’ trust in state government erodes further,” said Kim Crockett, vice president and Senior Policy Fellow at Center of the American Experiment. “It’s past time DHS starts doing its job, and it is entirely appropriate for the legislature to freeze funding for the program until they do.”

The DHS said in its response that it “generally agrees with” the OLA’s recommendation “and plans to seek information on how other states utilize data sources for this purpose.”

At the same time, DHS Commissioner Tony Lourey added that DHS’ “current eligibility and verification process is compliant with state and federal laws as demonstrated by our performance on federally required quality assurance reviews,” despite the OLA highlighting numerous examples of fraud.

The investigations of 15 childcare centers by DHS found childcare centers with 100 percent CCAP clients and false attendance documentation. Center owners were found to be involved in money laundering “on a large scale with proceeds from CCAP fraud,” according to the OLA report.

The OLA uncovered fraud that included recipients who underreported income or who misrepresented employment activities or educational activities to qualify for financial aid. Some providers also falsified attendance records and intentionally billed for a child who did not receive services, or they billed for more hours than the child attended and received services, the OLA found.

Crockett notes that after the legislative hearing last month, “None of the commissioners asked questions about this response to allegations of fraud.”

The OLA’s assessment of DHS having no integrity controls for the CCAP program, “makes you wonder about the other programs,” Crockett said in an email. “Minnesota is on track to spend $37 billion on health and human services in the next biennium.”

Crockett said the Center of the American Experiment is calling on Gov. Tim Walz to prioritize reforming DHS.

Unless Walz can demonstrate that DHS “has cleaned house and installed proper internal controls for CCAP and all federally funded health and welfare programs,” the Center recommends that all federal funding for DHS be halted.