The Child Care and Development Fund (CCDF) is the program authorized by the Child Care and Development Block Grant (CCDBG) Act that provides the combined discretionary and mandatory funding that flows to lead agencies (states, tribes, and territories). Lead agencies use these funds to help low-income working families afford child care, primarily through subsidies to offset the cost of child care, and to improve the quality of child care for all children. Given the size of the program and its reach, program integrity – ensuring federal funds are properly spent under the program – is a standing priority for federal and state administrators. 

This resource explains the important differences between two distinct aspects of program integrity within federally subsidized child care: fraud and improper payments. Current commentary on program integrity in child care has conflated these two issues. These are related but distinct concerns that administrators consider as part of their program integrity efforts, and it is important to understand how they are different and the longstanding rules and practices that are in place to address them.

Fraud is intentional. It involves deliberate misrepresentation or deception to obtain benefits or payments to which a person or entity is not entitled. In CCDF, fraud is rare but, as is the case with any benefit for any entity, it can occur –  on the provider side (such as billing for children who were not present or enrolling fictitious children), on the family side (such as falsifying income, employment, or residency to qualify for a subsidy), or when state or local officials intentionally break program rules. Fraud requires intent and, where proven, can result in criminal referral, civil penalties, and disqualification from the program.

Improper payments are any funds used for purposes that are not permissible under program rules or for which there is insufficient documentation. An improper payment can occur in a variety of ways regardless of whether anyone intended wrongdoing, including a payment made in the wrong amount, to the wrong party, for an ineligible service, or without adequate documentation. For example, a subsidy issued to a family whose income was not re-verified on time, or a provider reimbursed at the wrong rate due to a data entry error, could represent in CCDF an improper payment without any fraud. Federal law requires lead agencies to estimate, report, and reduce improper payments.

This distinction matters: Fraud demands law enforcement investigation and, where appropriate, criminal or civil enforcement. Improper payments demand administrative correction, process improvement, and overpayment recovery. These two types of program integrity challenges can at times overlap – in other words, sometimes a fraudulent claim leads to an improper payment or vice-versa – but improper payments do not generally constitute fraud.

Robust internal controls are in place at both the federal and lead agency levels to address both circumstances. At the federal level, the Office of Child Care (OCC) within the U.S. Department of Health and Human Services issues regulations and monitoring protocols, conducts lead agency reviews, and requires lead agencies to submit improper payment error rate data every three years. OCC also reviews and approves state plans, submitted every three years, that outlines state approaches to preventing, detecting, and remedying fraud. OCC reviews investigations and reports from oversight bodies such as the HHS OIG and determines if funds should be recovered because they were spent improperly. In 2023, the most recent year for which data is available, the CCDF improper payment rate was 3.55%, which is below the at-risk threshold of 10% for federal programs and activities established by Congress in the Payment Integrity Information Act of 2019. 

Maintaining program integrity in CCDF requires careful balance between efforts to reduce improper payments and prevent and investigate fraud while supporting state and other lead agency efforts to carry out the program’s mission of improving access to quality child care for families. Policymakers recognized this, and in the 2014 CCDBG reauthorization Congress set measures that balance program integrity with continuity of service, including allowing families to receive child care subsidies for 12 continuous months before the family is re-certified for income eligibility and qualifying work activities. HHS’s implementing rules for the 2014 CCDBG reauthorization also added explicit program integrity provisions. Lead agencies administering CCDF are required to outline effective internal controls in their plans to ensure integrity and accountability – covering processes for sound fiscal management, risk identification, program integrity training for staff and providers, and regular evaluation of these controls. Their plans must also describe procedures for identifying fraud or other program violations, such as through record matching and review of attendance and billing, along with processes to investigate fraud and improper payments, recover fraudulent payments, and impose sanctions on violating clients or providers. 

As a result, lead agencies’ controls typically include: income and eligibility verification at application and redetermination; attendance tracking systems that cross-check provider billing against child attendance records (described further below); provider enrollment screening, background checks and licensing requirements; overpayment identification and recovery processes; and data matching with other benefit programs, such as SNAP and Medicaid, to detect duplicate enrollment or inconsistent income reporting.

Many lead agencies use attendance tracking systems and attendance records for program integrity purposes, which is distinct from using attendance for purposes of determining payment amounts. Attendance records can be used to detect fraud or improper payments without altering payments to providers. When a child’s attendance is used for the purposes of determining payment, providers lose income because they are not paid when children are absent, yet their operational costs are generally unchanged. In the 2014 reauthorization, Congress added provisions to the CCDBG Act to account for the fixed costs that providers incur regardless of a child’s occasional absence by delinking provider payment rates and a child’s occasional absence (see here for state-by-state information on payment practices, as expressed through recently submitted CCDF state plans). 

Program integrity in CCDF relies on clear distinctions between fraud and improper payments, with different approaches to enforcement for fraud versus administrative correction for improper payments. Existing federal and state controls are designed to identify and address both types of risks. At the same time, statutory and regulatory provisions establish parameters for how integrity measures are implemented while simultaneously avoiding policies that penalize families or providers. 

Together, these frameworks define how lead agencies administer CCDF funds to advance the program’s critical mission while meeting federal requirements for accountability and oversight.

DISCLAIMER: Consistent with our mission, EducationCounsel is working to update and support the field as federal actions consequential to education are unfolding. The information provided above does not serve as legal counsel and, given the pace of action, could be outdated quickly. Nonetheless we hope this information is helpful. If you have any suggestions or feedback please send it to info@educationcounsel.com.