Texas reviewed its child care spending. It found little fraud.

Less than half a percent of federal money spent on child care scholarships in Texas was considered “improper,” according to a new report commissioned by Governor Greg Abbott.

The investigation, released in February by the Texas Workforce Commission and Texas Health and Human Services Commission, found that Texas’ improper payment rate stands at just 0.44% – approximately $4.3 million of the program’s $990 million budget. The national average for improper payments in similar programs is nearly nine times higher at 3.96%.

“This report confirms that Texas maintains strong anti-fraud measures that have kept improper payments extraordinarily low compared to other states,” said Andrew Mahaleris, Abbott’s press secretary. “Governor Abbott will continue working to further enhance oversight, fraud reporting tools, and enforcement to ensure every taxpayer dollar serves its intended purpose.”

Abbott ordered the review following allegations of a $110 million child care fraud scheme in Minnesota. While experts note these allegations were ultimately unfounded, the claims caused significant ripples nationwide. The federal government temporarily froze child care funding in five states – California, Colorado, Illinois, Minnesota, and New York – and prompted many states to review their fraud prevention systems.

Improper payments in Texas include any payment made for an incorrect amount, whether over or under the appropriate sum, or payments obtained through fraudulent means. The state has implemented numerous safeguards since 2011, which have helped reduce improper payments from 8.28% in 2007 to the current rate below half a percent.

Texas’ child care subsidy program faces substantial challenges beyond fraud concerns. More than 100,000 children were waiting for scholarships to cover preschool tuition costs as of late 2023. For many Texas families, preschool tuition exceeds the cost of attending a four-year university.

The program provides scholarships to families with incomes at or below 85% of the state’s median income, allowing parents to work or attend school. In 2022, the program spent more than $980 million, though these scholarships often cover only a portion of the total child care tuition.

“Of the millions of children that qualify for Child Care and Development Block Grant, less than a quarter actually receive assistance through the program,” said Radha Mohan, executive director of the Early Care and Education Consortium, a national nonprofit association of child care providers. “The program is woefully underfunded at the federal level.”

Many Texas communities are considered “child care deserts,” with few or no available preschool options. The state legislature allocated an additional $100 million to the child care subsidy program using leftover dollars from the Temporary Assistance for Needy Families Fund, but inflation quickly eroded the impact of this historic investment.

Child care advocates express concern that fears of widespread fraud could lead regulators to impose tighter requirements on providers or reduce funding, further straining an already under-resourced system.

“While you do want to address the issue of fraud, you also don’t want to over-correct and create issues where they currently do not exist,” Mohan emphasized.

The state investigation identified 125 high-risk providers out of approximately 7,500 that accept child care scholarships. Texas employs multiple fraud prevention measures, including regular in-person assessments of providers, an attendance tracking system, and a hotline and online portal for fraud allegations.

Sherry Durham, senior director of Child Care for Workforce Solutions of Deep East Texas, believes Texas’ regulations strike the right balance. “First and foremost is child safety,” Durham said. “But then, also, if there’s money coming from the federal government, you want to be good stewards of it.”

Looking ahead, Texas plans to enhance data sharing between state agencies regarding programs receiving child care scholarships. Local boards will be required to withhold funding from parents who owe the state money, and improvements to the state’s fraud reporting systems are planned.

However, some experts worry that new requirements might burden providers unnecessarily. Kathlyn McHenry, director of state government relations for the Early Care and Education Consortium, expressed concern about Texas requiring all providers to use a single child care management system.

“Mandating one specific child care management system for thousands of providers removes their ability to choose the system that works best for them and their families,” McHenry said. “And it potentially creates an unfunded mandate on providers when there really is no indication that this will prevent any additional fraud from occurring.”

The Texas Senate Health and Human Services Committee has scheduled a meeting on April 8 to gather public recommendations on fraud prevention in the child care and Medicaid systems.