**Improper Payments in the Improper Payments in the Child Care Program**

**A CCDF Issue Brief**

May 2006

**CCDF Plans**

This Issue Brief examines State and Territory child care assistance
improper payment policies as detailed in the Child Care and Development
Fund (CCDF) Plans for FY 2006-2007 of the 50 States, the District of
Columbia, and U.S. Territories. The CCDF Plans for Federal Fiscal Years
(FY) 2006-2007 became effective October 1, 2005, and may be amended as
policies or initiatives change.

**Funding and Administration of Child Care Programs**

Each year, CCDF provides Federal funding to States, Territories, and
Tribes to subsidize the cost of child care for low-income families.^1^
This Federal investment provides early care and education services for
more than 1.7 million children each month and supports a host of efforts
to improve the quality and supply of child care for all families.^2^
Eligible families must meet certain income requirements and must need
child care so they can work or participate in approved training or
education programs. CCDF agencies in States and Territories issue
vouchers to families, who may select any legally operating provider
participating in the subsidy program to care for their children, or
contract with providers to serve eligible families. Families typically
share the responsibility for child care costs by paying a copayment fee
directly to their provider according to a sliding fee scale established
by the State or Territory.

CCDF is administered by the Child Care Bureau in the Administration for
Children and Families at the U.S. Department of Health and Human
Services. States and Territories administering CCDF work in partnership
with the Child Care Bureau and multiple Federal, State, Tribal, and
local entities, including private-sector partners, to administer the
child care program. States and Territories are permitted to administer
some or all portions of the program through other governmental and
non-governmental entities. In some cases, States and Territories have
devolved administrative responsibility for CCDF to local jurisdictions
or contractors, including eligibility determination and payment
processing responsibility.

**Improper Payments in the Child Care Program**

The Improper Payments Information Act of 2002 (IPIA) requires Federal
agencies to report an annual estimate of improper payments for some
Federal programs and activities, and identify the steps being taken to
reduce these payments and improve the integrity of these programs (U.S.
Office of Management and Budget, 2002). In response to the President's
Management Agenda and the IPIA, the Child Care Bureau established a
pilot project, *Measuring Improper Payments in the Child Care Program*,
to document best practices to help States, Territories, and Tribes
identify, measure, and prevent errors in the administration of child
care funds. As part of the project, new questions on improper payments
were included in the *CCDF State and Territories Plan Preprint, FFY
2006-2007* (Child Care Bureau, 2005). All States and Territories
identified various strategies to pre­vent, measure, identify, and collect
improper payments in the CCDF Plans for FY 2006-2007.^3^ Strat­egies
include automation of data systems, stricter eligibility determination
processes, training and outreach, monitoring and auditing, various
payment recovery methods, and penalties in cases of intentional errors
or fraud by families and child care providers.^4^

**Definitions of Improper Payments**

The implementation guidance for the IPIA defines an erroneous or
improper payment as "...any payment that should not have been made or
that was made in an incorrect amount under statu­tory, contractual,
administrative, or other legally applicable requirement. Incorrect
amounts are overpayments and underpayments (including inappropriate
denials of payment or service). An improper payment includes any payment
that was made to an ineligible recipient or for an ineli­gible service.
Improper payments are also duplicate payments, payments for services not
received, and payments that do not account for credit for applicable
discounts" (U.S. Office of Management and Budget, 2002).

States and Territories use a variety of terms in their definition of
improper payments. As indicated in the CCDF Plans for FY 2006-2007, the
vast majority of the definitions include terms such as overpay­ment and
underpayment, intentional and unintentional error, pro­vider and
recipient error and/or fraud, and administrative errors.

  -----------------------------------------------------------------------
  "In most cases, the cause of improper payments can be traced to a lack
  of or breakdown in internal control" (U.S. Government Accountability
  Office, June 2004).

  -----------------------------------------------------------------------

**Prevention Strategies**

Prevention is a critical component in strategies to reduce improper
payments. States and Territories reported using several internal control
standards to prevent and reduce improper pay­ments, including automated
data systems; training for providers, parents, and agency staff;
stricter processes for authorization of services; and outreach
activities to prevent improper payments. Prevention strategies are
identified based on internal control standards established in the *U.S.
Government Accountability Office State Control Self-Assessment
Instrument*: risk assessment, control environment, control activities,
and information and communi­cation (U.S. Government Accountability
Office, June 2004).

**Risk Assessment Strategies: Looking for Weaknesses in the System**

One of the internal control standards used by CCDF agencies to prevent
improper payments is risk assessment---analyzing pro­gram operations to
determine where risks exist, what they are, and the potential or actual
impact of those risks. CCDF agencies in States and Territories each have
a unique set of risks due to the variation in policies and procedures,
and risk assessment strate­gies vary widely to meet the needs of each
agency.

> In 2005, **Kansas** partnered with the Child Care Bureau to pilot a
> State Internal Control Self-Assessment Instrument to identify
> vulnerabilities in the child care program. According to the Federal
> and State team, the Instrument provides a systematic method to review
> and document the adequacy of a State's internal control system;
> identifies internal control weaknesses; and provides documentation of
> any findings, follow-up, or corrective actions that might be required.

**Control Environment Strategies: Establishing a Culture of
Accountability**

Control environment strategies, such as an emphasis on compe­tence and
assignment of authority and responsibility, are used to promote a
culture of accountability and supportive attitude toward achievement of
program outcomes. Case reviews can be used by supervisory staff in
States and Territories to review work completed by caseworkers, ensuring
correct application of policy and procedures. Eleven States reported
that case reviews are conducted by supervisory staff to identify areas
prone to repeated errors and to ensure caseworker accountability.

> In **Utah**, a case review process for both new and experienced
> workers is in place. All of a new worker's cases are reviewed for the
> first 3 months, before any benefits are authorized. During the 4th
> through the 11th month, new workers have 50 percent of their cases
> reviewed. Experienced workers are reviewed six times a month by their
> supervisor.

Another control environment strategy to help prevent improper payments
is the training of internal and external staff working for or in the
child care program.

> **Illinois** provides periodic training to child care resource and
> referral agency staff to ensure that they are knowl­edgeable about the
> program policies and are applying procedures correctly.

**Control Activities: Establishing Policy and Procedural Safeguards to
Mitigate Risk**

Internal control activities may include policies, procedures, and
techniques an agency uses to achieve accountability and to meet
established program outcomes. Some of the control activ­ities States and
Territories reported using to prevent improper payments include
automation of data systems; development of policy manuals, procedure
guides, and checklist forms; and activities related to authorization
processes.

A data system with features that contribute to data accuracy is a
valuable tool for government agencies seeking to prevent and reduce
improper payments. A total of 34 States reported using data systems with
features that contribute to accuracy. In 25 of these States, the child
care data system detects errors during the eligibility determination and
runs reports that flag possible improper payments. Sixteen States
reported the capacity to share, review, and/or match data from other
government pro­grams (e.g., the Child and Adult Care Food Program,
Temporary Assistance for Needy Families, Medicaid, Food Stamps, Child
Support Enforcement, and Unemployment Insurance). Eleven States reported
using an automated system to collect informa­tion from the provider
regarding child attendance and provider billing and for automated
provider payment; 10 States reported using an automated data system for
eligibility determination.

> **Vermont's** data system includes safeguards that identify and
> prevent double data entry and payments, conduct electronic collection
> and verification of attendance, and share and compare information with
> the Child and Adult Care Food Program when issues of possible
> fraudulent reporting of attendance are suspected.
>
> **Mississippi's** new Child Care Information System con­tains several
> parameters and case edit checks designed to reduce the occurrence of
> improper payments:

-   The system automatically assigns a unique family identification
    number to each parent;

-   The system will not allow a parent or child's Social Security Number
    to be entered more than once;

-   The system calculates the household income and automatically assigns
    the correct copayment fee to each child; and

-   Once the birth date information has been entered, the system
    automatically calculates the child age, ensuring the correct rate is
    applied to that child's certificate.

Authorization processes, such as document verification, com­munication
with parents about rules and responsibilities, and the eligibility
redetermination process, are some of the other control activities
identified by 21 States and 2 Territories. The development of policy
manuals, procedure guides, and check­list forms are essential control
activities used by CCDF agencies to ensure that staff at all levels
follow management directives.

![](media/image1.jpeg){width="3.8340277777777776in"
height="6.009027777777778in"}

**Information and Communication Strategies: Sending the Message to
Parents and Providers**

Effective and clear communication with parents and providers is also an
important tool used by States and Territories to prevent improper
payments. Sixteen States reported that outreach and training activities
are conducted to inform families and child care providers of the
requirements for participating in the child care assistance program and
the rules regarding billing and payment.

> In **Rhode Island**, every provider approved to accept pay­ments in the
> child care assistance program must attend a mandatory introductory
> training session on program rules and provider responsibilities before
> they can receive their first reimbursement check.

**Identification and Measurement Strategies**

**Monitoring: Examining and Evaluating Performance**

Another essential internal control standard established by the GAO's
*State Control Assessment Instrument* is monitoring. Ongo­ing monitoring
allows States and Territories to examine and eval­uate the performance of
contracted and noncontracted provid­ers. Most States and Territories
reported using several strategies to measure and identify improper
payments, including reviewing the caseload, monitoring provider records,
monitoring/auditing grantees and contractors, and establishing
monitoring require­ments for contractors, grantees, field offices, and
local agencies. Several States reported that they developed a case
review and monitoring tool to ensure uniformity in case review and
edits.

> In **Oregon**, approximately 200 billing forms are selected randomly
> each month for a desk audit. Providers submit their attendance logs,
> which are checked against the amount billed and family case record
> information, helping identify overpayments.

A few States conducted benefit error studies to measure errors.

> **California** conducted an error rate study in the winter of
> 2004-2005, which estimated and reported potential improper payments
> resulting from parent or provider fraud or error. The study produced
> error rates ranging from 3 percent to 5 percent in the area of
> eligibility and parent fees (California Department of Education, April
> 2005).

![](media/image2.jpeg){width="3.7597222222222224in" height="2.61875in"}

**Collection Strategies and Additional Penalties**

States and Territories reported using multiple strategies to col­lect
overpayments and to penalize families and child care pro­viders when it
is established that improper payments resulted from fraudulent or
erroneous activities. Thirty-one States and two Territories reported
using repayment plans, reduction of future payments, tax intercepts, and
other options to collect overpayments. Twenty-two States reported that
they estab­lished family and provider sanctions to reduce and prevent
improper payments. Sanctions vary in each State and Territory and may
include one or more of the following: program dis­qualification, program
exclusion, child care license revocation, and criminal prosecution. In
some cases, a minimum overpay­ment amount must be owed by the parent or
provider before an agency will pursue collection or penalties; five
States and one Territory reported such a threshold.

> **North Carolina** has the authority to impose sanctions on families
> or providers when fraud has occurred, if a county or local agency
> submits such a request. Sanctions may be imposed in addition to
> requiring repayment of the child care subsidy ser­vices or funds
> received in error. When a sanction is imposed, the individual is
> ineligible to receive subsidized child care services for 12 months in
> any county. If a second instance occurs, the individual becomes
> permanently ineligible. Sanctions imposed on providers operate in the
> same manner.
>
> **Connecticut's** penalties for providers may include lifetime
> disqualification from the child care program and State license
> forfeiture.

To investigate records identified as possible improper payments, 16
States have designated staff or have established a fraud unit or quality
assurance unit to monitor and identify improper payments. Twenty-six
States and two Territories coordinate with or make referrals to a fraud
monitoring unit.

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height="2.3534722222222224in"}

**Conclusion**

States and Territories are using a variety of tools and standards to
help prevent, measure, identify, and collect improper payments. CCDF
agencies have defined the issue carefully and are implementing
strategies to address problems as they are discovered, includ­ing strong
policies and procedural safeguards to mitigate risk.

As part of the *Measuring Improper Payments in the Child Care Program
Pilot Project*, the Child Care Bureau partnered closely with 11 States,
visiting 6, to examine their approaches to improper payments. In the
project's next phase, the Child Care Bureau tested an error rate
methodology in 4 States and is testing an internal control assessment
tool in 10 more. In addition, the Child Care Bureau disseminated a
voluntary survey to States and Territories, which allowed them to share
information about their policies, practices, challenges, and solutions
related to improper payments. Additional information about the project
and State and Territory strategies to prevent improper payments is
available on the Child Care Bureau Web site at
www.acf.hhs.gov/programs/ccb/ta/ipi/ipi.htm.

**Endnotes**

^1^ The summary information provided categorizes the District of
Columbia as a State.

^2^ After including direct funding from Temporary Assistance for Needy
Families (TANF), the Social Services Block Grant (SSBG), and excess
Maintenance of Effort (State dollars), 2.3 million children are served.
The estimated total number of children served is calculated based on
CCDF administrative data (ACF 801) and financial data from CCDF (ACF
696), TANF, and SSBG programs.

^3^ Identified strategies are based on State and Territory CCDF Plan
responses to several open-ended questions and may not reflect all of the
strategies currently in place to prevent and reduce improper payments.
CCDF Plan responses on improper payments are not available for American
Samoa and the Virgin Islands.

^4^ Additional CCDF Plan information on State and Territory strategies
to address improper payments is available in the Child Care Bureau's
publication, *Child Care and Development Fund: Report of State and
Territory Plans, FY 2006-2007*, which will soon be available at
http://nccic.acf.hhs.gov/pubs/stateplan/stateplan-intro.html.

**References**

California Department of Education. (2005, April). *CalWORKS and
alternative payment child care programs: Error rate study report
required by Chapter 229, Statutes of 2004.* Retrieved March 28, 2006,
from www.cde.ca.gov/sp/cd/re/documents/errorratestudy.doc

Child Care Bureau, Administration for Children and Families, U.S.
Department of Health and Human Services. (n.d). *Measuring improper
payments in the child care program: A project of the ACF/Child Care
Bureau*. Retrieved January 16, 2006, from
www.acf.hhs.gov/programs/ccb/ta/ipi/ipi.htm

Child Care Bureau, Administration for Children and Families, U.S.
Department of Health and Human Services. (2005). *CCDF state and
territories plan preprint, FFY 2006-2007*. Retrieved December 30, 2005,
from
www.acf.hhs.gov/programs/ccb/policy1/current/ACF118/preprint_2006_final.htm

Child Care Bureau, Administration for Children and Families, U.S.
Department of Health and Human Services. (in press). *Child Care and
Development Fund: Report of state and territory plans, FY 2006-2007*.
Washington, DC: Author.

U.S. Government Accountability Office. (2004, June). *TANF and child
care programs: HHS lacks adequate information to assess risk and assist
States in managing improper pay­ments* (Publication No. GAO-04-723).
Retrieved January 16, 2006, from General Accountability Office Reports
Online via GPO Access: www.gao.gov/new.items/d04723.pdf

U.S. Office of Management and Budget. (2002). *Implementation guidance
for the Improper Payments Information Act of 2002, P.L. 107-300*.
Retrieved December 30, 2005, from
www.whitehouse.gov/omb/memoranda/m03-13-attach.pdf

**About this Brief**

This Issue Brief was developed at the direction of the Child Care
Bureau, Administration for Children and Families, U.S. Department of
Health and Human Services to meet the information needs of Child Care
Administrators. It was prepared for the Child Care Bureau by the
National Child Care Information Center, through contract #233-01-0011
with Caliber, an ICF International Company.

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| ](med |                                                              |
| ia/im | Administration for Children and Families                     |
| age8. |                                                              |
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