DEPART~IENT OF HEALTH AND HmvLL\1'\" SERVICES 
OFFICE OF INSPECTOR GENERAL 
WASI-Il:'iGTON, DC  2020i 
'JUlll Z013 
TO: 	 George Sheldon 
Acting Assistant Secretary 
Administration for Children and Families 
FROM:  Stuart Wright 
Deputy Inspector General 
for Evaluation and Inspections 
SUBJECT: 	 Early Alert Memorandum Report : License-Exempt Child Care Providers 
in the Child Care and Development Fund Program, OEI-07-10-00231 
This early alert memorandum report identifies gaps in States' health and safety 
requirements and monitoring requirements for license-exempt child care providers in the 
Child Care and Development Fund (CCDF) program, which is administered by the 
Administration for Children and Families (ACF).  The Office oflnspector General (OIG) 
is conducting an evaluation entitled Child Care and Development Fund:  Monitoring of 
Licensed Child Care Providers (OEI -07-1 0-00230), with report publication anticipated in 
fall 2013 . During data collection for this evaluation, we found that a number of States 
(1) exempt CCDF subsidy-receiving providers from licensing requirements, (2) did not 
report having certain health and safety requirements for license-exempt providers, and 
(3) did not have requirements in place to monitor license-exempt providers. 
SUMMARY 
States are required to have health and safety standards in place for all providers  
including license-exempt providers-receiving CCDF money.  By statute, these 
standards must cover three areas:  prevention and control of infectious disease; building 
and physical premises safety; and health and safety training. 
I 
In reviewing information sent to us by the States, we found that a number of States did 
not report having any requirements for license-exempt providers in at least one of the 
three areas.  Additionally, a few States reported that they did not have requirements in 
place to monitor license-exempt providers.  These States are not fully compliant with 
Federal regulations.  Other States reported allowing providers to self-certify compliance 
I Section 658E( c )(2)(F)(i}-(iii) of the Child Care and Development Block Grant Act of 1990 (the CCDBG 
Act).  Page 2  George Sheldon 
 
with health and safety requirements, and reported limited monitoring, limited use of 
background checks, and provider nonreporting of serious injuries.  We believe that these 
gaps in health and safety requirements and gaps in monitoring represent vulnerabilities 
that could potentially lead to harm for children in care, including care financed by the 
Federal government. 
 
On May 20, 2013, ACF issued a Notice of Proposed Rulemaking (NPRM) that included 
regulations to strengthen health and safety requirements for and oversight of CCDF 
providers.2  Although OIG acknowledges ACFs efforts to make its regulations more 
comprehensive, some States do not comply with the current Federal regulations for 
license-exempt providers. Therefore, we are providing this early alert memorandum so  
that ACF can use this information to bring those States into compliance with existing 
Federal regulations. 
 
As written, the proposed regulations do not allow providers to self-certify compliance 
with health and safety requirements, and require States to take specific steps to monitor 
all CCDF providers. OIG acknowledges the steps that ACF is taking to strengthen 
oversight of license-exempt providers through the NPRM.  ACF may want to use the 
information in this memorandum report as further justification for finalizing the 
regulations with these heightened oversight requirements. 
 
BACKGROUND 
 
For a State to be eligible to receive funds through CCDF, ACF must review and approve 
a 2-year State plan.3  To continue receiving funding, a State must submit a new State plan 
prior to the expiration of its current plan.4  
 
Approximately 600,000 child care providers in 50 States and the District of Columbia 
(States) provide child care funded through CCDF.5, 6 Federal regulations allow CCDF 
expenditures for four types of child care:7  center-based, group home, family home, and 
in-home.  The two types of child care providers discussed in this memorandum are 
center-based providers and family home providers; together, these two types covered, on 
average, 89 percent of children in CCDF-subsidized care in fiscal year (FY) 2009.8   
Center-based child care is provided in a nonresidential setting, and family home child 
                                                 
2 78 Fed. Reg. 29441  (May 20, 2013).  

3 Each State plan includes information about the States CCDF program with regard to how it administers 

the program, child care services offered, parental rights and  responsibilities, activities and services to 
 
improve the quality and availability of child care, and  health  and safety requirements.
 
4  45  CFR  98.17. 
    
5 Table 7, CCDF, Number of Child Care Providers Receiving CCDF Funds (FFY 2009). Accessed at 

http://acf.hhs.gov  on  January 15, 2013.  

6 Although there are tribal and territorial programs in CCDF, we are looking only at State programs.  Tribal 

programs are subject to different legal requirements and  policies.  

7  45  CFR  98.2 (Definitions) and  98.30(e)(1). 

8 Table 3, CCDF, Average Monthly Percentages of Children Served  by Types of Care (FFY [Federal Fiscal 
 
Year]  2009). Accessed at http://acf.hhs.gov on January 15, 2013.  All fiscal years referred to in this report 
 
are Federal fiscal years.  
 Page 3  George Sheldon 
 
care is provided by one individual as the sole caregiver in a private residence other than 
the childs residence. 
 
Child care providers who participate in the CCDF program must be operating legally 
within the jurisdictions in which they operate.  Providers must be licensed or regulated in 
their respective jurisdictions or be legally exempt from regulation (license-exempt).9   
Some States impose regulations on providers that are not licensedOhio, for instance, 
certifies its family home providers.  Certification in Ohio is a form of regulation under a 
process that is very similar to licensing; because these providers are still regulated, we do 
not consider them to be license-exempt.   
 
According to ACF data, 21 percent of children whose care is funded through CCDF are 
served by providers who would not be subject to any State or local child care 
regulationsi.e., providers that we would consider license-exemptif they were not 
participating in the CCDF program. 
 
Health and Safety Requirements 
In accordance with the CCDBG Act, States must certify that under State or local law,  
they have in effect requirements designed to protect the health and safety of children 
receiving CCDF subsidies.10  Those requirements must include three areas:  the 
prevention and control of infectious disease (including immunizations); building and 
physical premises safety; and minimum health and safety training appropriate to the 
provider setting. For licensed providers, States licensing requirements fulfill these 
statutory requirements.  For license-exempt providers, ACF requires States in their State 
plans to describe which providers are exempt from licensing under State law and instructs 
them to describe how these providers will meet health and safety requirements for child 
care services in each of the three required areas.  
 
Monitoring Requirements 
Section 685E(c)(2)(G) of the CCDBG Act requires States to ensure that providers serving 
children whose care is subsidized through CCDF comply with applicable health and 
safety standards. Federal regulations require each State to certify that it has procedures to 
ensure that child care providers comply with applicable health and safety requirements. 
ACF reported to us that, as part of the State plan, States certify that they have licensing 
requirements applicable to child care services.  States must describe those licensing 
requirements and how they are effectively enforced.  However, there are no specific 
monitoring requirements for license-exempt providers.  If the State conducts health and 
safety monitoring only in conjunction with licensing requirements, then license-exempt 
providers may not be effectively monitored.  
 
ACF Oversight Requirements 
The CCDBG Act requires Federal monitoring of each States compliance with its plan.11   
Although the CCDBG Act does not require States to (1) conduct routine unannounced 
inspections of child care providers, (2) perform background screenings on providers (or 
                                                 
9 ACF,  Fundamentals of CCDF Administration.  Accessed at http://www.acf.hhs.gov/ on March 23, 2011. 

10 Section 658E(c)(2)(F) of  the CCDBG Act. 

11 Section 658I(b)(1)  of the CCDBG  Act. 
 Page 4  George Sheldon 
 
their family members), or (3) require providers to report serious injuries that occur while 
a child is in care, ACF guidance instructs each State to indicate whether it performs these 
three activities. States are also asked to describe any other methods they use to enforce 
health and safety requirements (e.g., percentage of providers inspected annually and the 
length of time between inspections).12  
 
METHODOLOGY 
 
As part of our study entitled Child Care and Development Fund:  Monitoring of Licensed 
Child Care Providers (OEI-07-10-00230), we surveyed the State staff responsible for 
licensing; health and safety; and monitoring.  We requested that each State describe the 
health and safety requirements that fulfill requirements in the three areas (prevention and 
control of infectious disease; building and physical premises safety; and health and safety 
training), as well as monitoring methods for licensed and license-exempt child care 
providers. 
 
According to CCDF State plans, 30 States allow license-exempt center-based providers to 
care for children receiving CCDF subsidies, and 33 States allow license-exempt family  
home providers to care for these children.13   
 
RESULTS  
 
States exempt many CCDF subsidy-receiving providers that provide care for 
children  
State child care licensing  regulations and monitoring and enforcement policies help 
provide a minimum standard of protection for the health and safety of children in  
out-of-home care.  However, States are not required to apply licensing requirements to 
specific kinds of child care providers in order for them to be eligible to receive CCDF 
funds.14  Some States exempt providers because  they are subject to different regulations 
(e.g., those providers who are on Federal property and subject to requirements of the  
Department of Defense).  Providers that are exempt from licensing and not subject to 
more stringent requirements may not provide the same standard of care as those providers 
that are licensed. States exempt both center-based and family home providers. 
 
Seven States exempt family home providers that care for children from one family, 
regardless of the number of children.  Often, this is in addition to any number of the 
providers own children or relatives who are receiving care in the home.  Eighteen States 
exempt family home providers caring for five or fewer, three or fewer, or two or fewer 
                                                 
12 ACF,  CCDF State and Territories Plan Preprint  Guidance, FFY 20102011.  Accessed at  
http://www.acf.hhs.gov on  February 1,  2011. 
13 In its CCDF State plan, Wisconsin  reported  allowing CCDF funding for license-exempt center-based and 
family home providers.  However, on its survey, it reported that no CCDF funding is allowed for those 
providers.  In its CCDF State plan, Kansas reported all family home child  care providers  paid  with CCDF  
funds were subject to licensing  under State law.  However, during  the period  of our review, these providers 
were actually registered, rather than licensed.  Because the Kansas registration process relied mostly on 
self-attestation  of compliance, we included these providers in  our analysis of license-exempt providers. 
14 Section 658E(c)(2)(E) of the CCDBG  Act.   Page 5  George Sheldon 
 
children (six States total for each).  See Appendix A for additional analysis of the types 
of license-exempt providers. 
 
Some States require providers that receive CCDF funds to register with the State.  Utah, 
which exempts family home providers caring for five or fewer children, maintains a 
database of providers that are not licensed and that are paid through CCDF.  These 
providers self-certify that they meet minimum health and safety standards.  Parents of 
children in the care of license-exempt providers are notified that provider training is 
available and are instructed to share this information with the provider.  In FY 2010, on 
average, 34 percent of children served by CCDF in Utah were cared for by  
license-exempt providers. 
 
Not all States required license-exempt child care providers to meet Federal health 
and safety requirements 
States are required to have in effect, under State or local law, requirementsdesigned to 
protect the health and safety of childrenthat apply to child care providers paid through 
CCDF.  These requirements must include the prevention and control of infectious 
diseases; building and physical premises safety; and minimum health and safety training 
appropriate to the provider setting.15  
 
Several States lacked one or more of these health and safety requirements for certain 
license-exempt providers. In the extreme, Mississippi officials reported that they did not 
have jurisdiction over license-exempt providers at all; they had no requirements for either 
center-based or family home providers in any of the three areas required by the statute.  
Two States did not report any requirements for license-exempt family home providers.  
Nine States did not report any health and safety training requirements for license-exempt 
center-based providers; four additional States lacked these requirements for family home 
providers. See Appendix B for additional analysis of health and safety requirements.  
  
States with health and safety requirements for license-exempt providers commonly 
allowed providers to self-report compliance 
The CCDBG Act requires States to have procedures in effect to ensure that child care 
providers paid through CCDF comply with all applicable State or local health and safety 
requirements.16  Of the States that did report health  and safety requirements in the 3 areas, 
9 States allowed center-based providers to self-report compliance with requirements, 
while 23 States allowed family home providers to self-report compliance with at least one 
requirement.  In most States, this means providers simply return a checklist verifying 
healthy and safe conditions of the home  or center (e.g., the facility has working 
telephones, child-accessible areas are free of hazards, alcohol and drugs are prohibited, 
and/or home or center is pest-free). 
 
   
                                                 
15 Section 658E(c)(2)(F) of  the CCDBG Act.  
16 Section 658E(c)(2)(G) of  the CCDBG Act.   Page 6  George Sheldon 
 
States did not always monitor license-exempt providers for compliance with health 
and safety requirements 
Although the CCDBG Act does not require States to (1) conduct routine unannounced 
inspections of child care providers, (2) perform background screenings on providers (or 
their family members), or (3) require providers to report serious injuries that occur while 
a child is in care, ACF guidance instructs each State to indicate whether it performs these 
three activities. In eight States, license-exempt family home providers are not required to 
have a background check conducted. In most States, license-exempt providers are not 
subject to routine monitoring visits.  Monitoring requirements were particularly lacking 
for family home providers.  Additionally, only four States require license-exempt family 
home providers to report serious injuries.  See Appendix C for additional analysis of 
monitoring requirements. 
 
CONCLUSION 
 
States may and do exempt many kinds of providers from licensing.  These providers, 
however, are still required to adhere to Federal health and safety requirements in order to 
be eligible for CCDF payments.  We found that not all States required license-exempt 
child care providers to meet Federal health and safety requirements.  Further, we found 
insufficient procedures in effect to ensure that license-exempt child care providers 
comply with applicable State or local health and safety requirements.  ACF needs to be 
reasonably assured that States have Federal health and safety requirements in place for 
license-exempt providers and that States ensure compliance with these requirements 
before they authorize CCDF vouchers. 
 
As noted earlier, on May 20, 2013, ACF issued an NPRM that included regulations to 
strengthen health and safety requirements for and oversight of CCDF providers.17 These 
regulations, as written, propose more comprehensive health and safety requirements for 
center-based, group home, and family home  CCDF providers, including license-exempt 
providers. States have the option to exempt in-home providersi.e., individuals who 
provide child care services in the childs own residenceand providers caring for 
relatives from these requirements.  Comments on this proposed rule must be received on 
or before August 5, 2013. 
 
This report is being issued directly in final form because it contains no recommendations.  
If you have comments or questions about this report, please provide them within 60 days.  
Please refer to report number OEI-07-10-0231 in all correspondence.   
   
                                                 
17 78 Fed. Reg. 29441  (May 20, 2013).   Page 7  George Sheldon 
 
APPENDIX A 
 
Types of Center-Based License-Exempt Providers 
Reason Provider Is Exempt From  
States That Exempt Providers   Total Number of States  
Licensing  
Religious institution  AL, CT, FL, IL, IN, MA, MN, MO, NH, VA   10 
AL, CA, CT, FL, HI, IL, IN, LA, MA, ME, MN, MS, 
Public school  22 
MO, NH, NY, ND, OR, UT, VA, WV, WI, WY 
Federal property  AL, IL, KS, MI, NY, OR, TX, UT, WY   9 
Temporary/short duration   AL, CA, HI, IN, MA, MN, MS, NY, OR, UT, WA, WV   12 
Parent located on the premises  CA, IL, MI, MN, NH, OR, UT, WI  8 
Source:  OIG analysis of State survey  data, 2013. 
 
 
Types of Family Home License-Exempt Providers 
Reason Provider Is Exempt From  
States That Exempt Providers   Total Number of States  
Licensing  
Serves children from one family   CA, CO, MN, MT, NE, OR, WY   7 
Serves two or fewer children   HI, ME, MT, NY, SC, WY   6 
Serves three or fewer children   IL, NE, NH, OR, PA, WI  6 
Serves four or fewer children   MO, TN   2 
Serves five or fewer children   IN, IA, MS, ND, UT, VA  6 
Serves six or fewer children   ID, KS  2 
All family home providers are 
LA  1 
exempt  
Source:  OIG analysis of State survey  data, 2013. 
 
 
 
    Page 8  George Sheldon 
 
APPENDIX B  
 
Methods Through Which States Allow Center-Based License-Exempt Providers To 
Meet Federal Health and Safety Requirements 
Number of States With  Number of States With  Number of States 
Methods Through Which States  Allow  
Requirement for  Requirement for Building  With Requirement for 
Center-Based License-Exempt Providers To 
Prevention and Control of   and Physical Premises  Health and Safety  
Meet Health and Safety  Requirements  
Infectious Disease   Safety   Training  
Has same requirements as for licensed 
providers, or verifies requirements through an   5  7  6 
inspection  
Allows center-based license-exempt providers 
to meet requirements through public school  14  13  10 
requirements or  other accreditation  
Allows center-based license-exempt providers 
to meet requirements through self-reported  9  8  4 
compliance with health and safety requirements 
Did not allow  CCDF funding to providers*  1  1  1 
No requirement   1  1  9 
Total   30  30  30 
*Note:   In its CCDF State plan,  Wisconsin reported allowing CCDF funding  for license-exempt center-based and family home providers.   However, on its survey  
it reported that no  CCDF funding is allowed for those providers.  
Source:  OIG analysis of State survey  data, 2013. 
 
Health and Safety Requirement Fulfillment for Family Home License-Exempt 

Providers 

Number of States With  Number of States With  Number of States 
Methods Through Which States  Allow  
Requirement for  Requirement for Building  With Requirement for 
Family Home License-Exempt Providers To 
Prevention and Control of   and Physical Premises  Health and Safety  
Meet Health and Safety  Requirements  
Infectious Disease   Safety   Training  
Has same requirements as for licensed 
providers, or verifies requirements through an   8  6  3 
inspection  
Allows family home providers to meet 
1  1  11 
requirements through training  
Allows family home providers to meet 
requirements through self-reported compliance  21  23  10 
with health and safety requirements  
Did not allow  CCDF funding to providers*  1  1  1 
No requirement   3  3  9 
Total   34**  34**  34** 
*Note:   In its CCDF State plan,  Wisconsin reported allowing CCDF funding  for license-exempt center-based and family home providers.   However, on its survey  
it reported that no  CCDF funding is allowed for those providers.    
**Note:  In its CCDF State plan, Kansas  reported that  all family home child care providers paid  with CCDF funds were subject to licensing under State law.   
However, these providers were actually registered, not licensed, so we included them in our analysis of license-exempt providers.     
Source:  OIG analysis of State survey  data, 2013. 
    Page 9  George Sheldon 
 
APPENDIX C 
 
Measures States Have in Place To Monitor Center-Based License-Exempt and 
Family Home License-Exempt Providers   
Number of States With Measure  Number of States With 
in Place Regarding  Measure in Place Regarding  
Measure 
Center-Based  Family Home 
License-Exempt Providers   License-Exempt Providers  
State conducts routine announced visits   6  8 
State conducts routine unannounced visits   7  9 
State does not conduct routine visits  19*  23* 
State performs background checks  15  26 
State does not perform background checks   15  8 
State requires providers to report serious injuries  6  4 
State does not require providers to report serious 
24  29 
injuries  
*Note:   Two States reported that they conduct both routine announced and routine unannounced visits for center-based 
license-exempt providers.  Six States reported  that they  conduct both types of visits for  family home license-exempt 
providers. 
Source:  OIG analysis of State survey  data, 2013.