Background

The Head Start program was established in 1965 to deliver comprehensive  educational, social, health, nutritional, and psychological services to low- income families and their children who are below the age of compulsory  school attendance. These services include preschool education, family  support, health screenings, and dental care. Head Start was originally  aimed at 3- to 5-year-olds. A companion program, called Early Head Start,  began in 1994 and focuses on making these services available to pregnant  women and children from birth to 3 years of age. Head Start operates both  full- and part-day programs—most only during the school year. The  Migrant and Seasonal Head Start program is designed to meet the specific  needs of migrant and seasonal farm worker families. OHS makes Head  Start grants directly to approximately 1,600 local organizations, including  community action agencies, school systems, tribal governments and  associations, and for-profit and nonprofit organizations. To accomplish  Head Start’s goals, the Congress provided $7.2 billion in federal funds for  fiscal year 2010, as well as $2.1 billion in Recovery Act funds.
Head Start statutes and regulations establish several primary eligibility  criteria, one of which a child must generally meet in order to enroll in the  program. These primary criteria include the child’s family earns income  below the federal poverty level; the child’s family is eligible or, in the  absence of child care, would potentially be eligible for, public assistance;  the child is in foster care; or the child is homeless. However, Head Start  programs may also fill up to 10 percent of their slots with children from  families who do not meet any of the above criteria, but who “would  benefit” from participation in the program. If a single grantee operates  multiple Head Start locations, the 10 percent limit applies to the aggregate  total enrollment for all combined locations run by that grantee. We refer to  these children and their families as over-income. There is no cap on the  income level for the over-income families. If the Head Start program has  implemented policies and procedures that ensure that the program is  meeting the needs of children eligible under the primary criteria and  prioritizes their enrollment in the program, then the program may also fill  up to 35 percent of its slots with children from families with income below  130 percent of the poverty line. Programs filling slots under this provision  are subject to additional reporting requirements. Children from families  with incomes below 130 percent of the poverty line, and children who  qualify under one of the primary eligibility criteria, are referred to as  “under-income” for the purposes of this report. In addition, unless a  program applies for and receives a waiver, at least 10 percent of each  program’s total slots must be filled with children with disabilities who are  determined to be eligible for special education and related services or  early intervention services. To qualify for the Migrant and Seasonal Head  Start program, families must have changed their residence within the  preceding 24 months for the purpose of engaging in certain agricultural  work, and the families’ incomes must come primarily from this type of  work. In enrolling families in Head Start, program staff are to review  documentation of income and employment to certify that each family is  eligible. Head Start services are to be provided free of charge to eligible  families.
OHS assigns each grantee a specific number of children and families that it  is required to serve, known as the funded enrollment. Head Start statutes  and regulations require grantees to maintain enrollment at 100 percent of  the funded enrollment level. If a child stops attending the program, after  the grantee has attempted, unsuccessfully, to get the child back in regular  attendance, the grantee must reopen that spot as a vacancy and no more  than 30 calendar days may elapse before the grantee fills the vacancy;  otherwise, OHS considers the grantee underenrolled. To facilitate the  prompt filling of vacancies, Head Start statutes and regulations require  each grantee to maintain a wait list that ranks children according to its  selection criteria and to select those with the greatest need for services.  Grantees report enrollment numbers monthly, and those that are  underenrolled for 4 consecutive months must receive technical assistance  from OHS and work to develop and implement a plan to eliminate  underenrollment. A grantee that continues to operate with less than 97  percent of its funded enrollment level may have its grant amount  recaptured, withheld, or reduced by OHS. According to HHS, funds for 30  grantees were reduced in 2006. A Head Start grantee may also be  terminated from participation in the program for continuously failing to  meet other performance, education, administrative, and financial  management standards that have been established by HHS.

	Allegations of Fraud and Abuse Involving Two Head Start Grantees

We investigated the allegations of fraud and abuse that we received  involving Head Start nonprofit grantees in the Midwest and Texas. Based  on our investigation, two of the allegations were substantiated. For  example, we were able to substantiate that a Midwest grantee included in  its calculation of nonfederal funding match donations that were not  eligible. However, other allegations could not be confirmed based on  documents we were able to obtain. In some cases it was not possible for  us to verify information contained in Head Start records; therefore we  cannot conclude whether allegations could be substantiated. As we found  during the course of our undercover investigations, records kept by Head  Start grantees could be manipulated in order to make a child appear  eligible for services.

		Texas Grantee Allegations

			Over-Income Enrollments

In Texas, individuals we spoke with alleged that the grantee enrolled more  than 10 percent of over-income families in order to meet enrollment  requirements. An aggregate accounting of all centers operated directly by  one grantee is permitted under the law for determination of the 10 percent  over-income limit. This allegation was not substantiated, but we found that  some of the grantees’ centers enrolled more than 10 percent of over- income families. Across all grantee sites, five percent of families were  registered as over-income. Based on records obtained from the grantee, it  appears that 9 of the grantees’ 28 centers had more than 10 percent over- income families enrolled. According to the documentation we reviewed,  the percentage of over-income families in the 28 centers ranged from  centers with no over-income enrollments to one center where 44 percent  of the 18 families it enrolled were over-income. (See table 1.)
GAO obtained specific records for all over-income children at one of the  grantees Head Start centers. GAO found that over-income families at this  center reported incomes ranging from a low of $27,000 to a high of  $120,000. We did not independently verify whether the families served by  this grantee were over- or under-income.

			Homeless Enrollments

Individuals we spoke with also alleged that Head Start staff at this Texas  grantee encouraged parents to report that they were homeless when they  were not in order to qualify them for the program. Because not all of the  records we reviewed contained sufficient information to determine  whether a given family was homeless, we were unable to substantiate this  allegation.
Under the law, a child qualifies as homeless if the child lacks a fixed,  regular, and adequate nighttime residence, which includes a child sharing  the housing of other persons due to loss of housing, economic hardship, or  a similar reason. Records we obtained indicate that 22 percent of all  children enrolled by the grantee were classified as “homeless”—a group  considered at risk and categorically eligible for Head Start services  regardless of income. On a classroom basis, one classroom had none of  the students classified as homeless, while in another classroom 38 percent  of the students were considered homeless. Our concern, based on the  allegation, was that some portion of these families classified as homeless  in grantee records were actually over-income families that were not, in  fact, homeless, but were encouraged to report that they were in order to  qualify. We also analyzed enrollment records for 22 students classified as  homeless at one of the Texas grantee’s centers. We determined from  records that 11 of 22 children at this site were correctly classified as  homeless. According to grantee documents, of the 11 students correctly  classified as homeless, 8 students lived with relatives due to financial  hardship and 3 students lived with relatives due to a temporary change in  guardianship. However, based on documentation we obtained from the  grantee, we could not determine whether the other 11 children were  correctly classified as homeless. Of these 11, it appears that 8 of the  students would have qualified for Head Start services because they met  another primary eligibility criterion. For three of the families, we were not  able to determine from the files whether they would have been eligible for  Head Start services under another primary eligibility criterion. By  extension of certain Head Start regulations, OHS officials told us that if a  child qualified for Head Start because it was determined that he or she was  homeless, the child would be eligible not only in the determination year,  but also in the following year, without the requirement that the child’s  homeless status be re-verified. We did not independently verify whether  any of the 22 students were homeless.

			Employee Use of Vehicles

Individuals we spoke with also alleged that numerous grantee employees  were allowed to use company vehicles for personal use at the expense of  the grantee, but we were not able to determine whether this allegation was  true. We were able to determine that the grantee did allow its employees  to drive the automobiles from their homes to Head Start centers.  According to regulations and an Office of Management and Budget (OMB)  circular, if the grantee allows employees to use vehicles owned by the  organization, only those vehicle costs associated with performance of the  Head Start grant may be submitted as allowable costs and reimbursed by  Head Start. We reviewed grantee policy as it related to vehicle record  keeping. We determined that grantee policy followed OMB policy and  stated that travel logs must be maintained as prescribed by the appropriate  supervisor. Grantee officials stated that a set amount was deducted from  employee paychecks to account for this benefit to the employees. Based  on a review of the grantee policy, we were not able to substantiate this  allegation. However, we did not review actual usage of vehicles to  determine if usage was in accordance with grantee policy or whether  employees accurately reflected their personal use in the records they were  required to keep.

		Midwest Grantee Allegations

			Double-Counting Enrollments

Individuals we spoke with alleged that Head Start staff at a Midwest  Migrant and Seasonal Head Start program were inflating enrollment  numbers by counting children toward both grantee and delegate  enrollment numbers. We were able to substantiate that children were  enrolled in both the grantee and delegate sites; however, we were not able  to determine the justification for moving the children between locations.  For the Midwest Migrant and Seasonal Head Start program, we were able  to confirm through documents obtained from the grantee that in 2008  more than 60 children were moved from one center to other centers with  vacancies at the end of the grant period. It is not clear whether the  students were physically moved to the other centers or whether they were  moved only on paper. According to OHS officials we spoke with, Migrant  and Seasonal Head Start grantees are only required to meet the funded  enrollment targets for any month of the grant period—unlike Head Start  grantees who are required to maintain funded enrollment levels  throughout their program year. The grantee reported that it reached full  enrollment targets for 2008. Thirty-nine children were enrolled at both  grantee and delegate centers during the year. We also found that in 2004  an informant alleged that the Midwest Migrant and Seasonal Head Start  program knowingly falsified reports by inflating enrollment numbers. GAO  obtained a copy of an internal investigation conducted in 2005 by the  organization that contracted out the operation of services to this  organization to serve as a grantee which determined that 130 children  were double counted during the grant year. Records indicate that this  report was forwarded to OHS for their review; however, OHS officials first  told GAO that they did not have record of receiving this report. Officials at  OHS later told GAO that the report was forwarded to the HHS OIG for  their review. In August 2010, OHS issued a Program Instruction stating  that Migrant programs must ensure that they have systems in place to  report an unduplicated count of children even if they move through their  service area during the course of the year. It recommended that in order  for Migrant and Seasonal grantees to accurately report their funded  enrollment, without counting children more than once during a budget  year, those grantees that do not already assign unique identifiers to  enrolled children do so beginning with their fiscal year 2011 grants.

			Back-Dating Invoices

An individual we spoke with alleged that the grantee had purchased  supplies and materials for the Head Start centers and during this process  had asked the vendor to back-date invoices in order to make the  expenditure appear as though it had taken place in a previous grant year.  We substantiated that the grantee requested the backdating of certain  invoices. We obtained documents showing grantee employees requesting  via facsimile the backdating of these invoices. We requested that the  vendor of these supplies and materials provide us with information related  to these purchases. The vendor declined to provide GAO with copies of  these records; therefore we could not investigate the allegation further.  Subsequently, we spoke with representatives of this grantee who  confirmed that program staff had requested the backdating of invoices. As  a result of this finding, the grantee has implemented a new electronic  system to prevent this from happening in the future. We plan to refer this  information to the HHS Office of Inspector General after issuing this  report.

			In-Kind Donations

An individual we spoke with alleged that the grantee was including in its  in-kind calculation donations that were not eligible to be considered as  part of the grantee’s in-kind match, and we found this was true for a  minority of the donations. As a part of the grant requirement, most Head  Start grantees are required to match federal dollars with at least 20 percent  in nonfederal contributions. These contributions can be cash donations or  in-kind noncash donations including donated goods and services directly  benefiting the grant program and specifically identifiable to it. We  reviewed in-kind donations recorded by the Midwest Migrant and Seasonal  Head Start program in the 2009-2010 program year to determine whether  these donations were allowable under applicable statutes and regulations.  We found that of the 157 in-kind donations the grantee provided records  for, 52, or $4,743 of the $96,123 in-kind donations were not allowable. For  40 of the 52 unallowable donations, the Head Start grantee incorrectly  recorded the time spent by parents to complete Head Start take-home  activities with their children as in-kind donations. For 12 of the 52  unallowable donations, the time spent by parents at Head Start orientation  and trainings was also recorded as in-kind donation. Under applicable  regulations and Head Start guidance, these activities are not allowable as  parents or children primarily benefit from these activities, not the Head  Start program. The other 105 of the 157 in-kind donations, or $91,380 of  the $96,123, in-kind donations, were allowable under Head Start statutes  and regulations. These related to donations such as reduced rent and  training cost reductions. We did not independently verify whether the  grantee received any of these donations or whether their values were  correctly calculated.

			Grantee Internal Investigation

In September 2010, representatives from this grantee met with GAO to  discuss actions that the grantee has taken since the start of GAO’s  investigation. These representatives told us that as a result of GAO’s  investigation, they conducted their own internal investigation into a  variety of matters. As a result, representatives told us that they took  appropriate personnel actions against 5 employees. Representatives  expressed frustration that current regulations prevent them from taking  action to terminate employees without the consent of the grantee’s Policy  Council—and organization made up for parents of currently enrolled  children and community members.

		Overreporting Enrollment at Both the Texas and Midwest Grantees

In addition, we spoke with individuals who alleged that both the Texas and  Midwest grantees continued to report that children were enrolled even  after the grantee had received information that the children would no  longer be participating in Head Start services. We compared enrollment  information from OHS that the grantees reported as part of the Program  Information Report (PIR) required annually with information obtained  from daily attendance records we obtained directly from grantees. Based  on our review of this information, we determined that for both grantees,  average attendance at Head Start grantee centers was considerably lower  than the reported enrollment at the centers.
For the 5 months we analyzed, the Texas grantee was funded to provide  services to 1,324 Head Start students. During this time, the Texas grantee  reported to OHS that it enrolled a low of 1,201 students in August 2009 to a  high of 1,312 students in December of 2009—from 91 to 99 percent of the  funded enrollment, respectively. We found that attendance in 2009 was  consistently less than reported enrollment. Average attendance per month  ranged from 79 percent to 85 percent of reported enrollment for that  month. For example, in November, the grantee was funded to enroll 1,324  students; it reported that it enrolled 1,308 students, while an average of  1,107 students attended class. We also found that attendance on a single  day ranged from 64 percent to 91 percent of reported enrollment for that  month. (See table 2.)
For the Midwest Migrant and Seasonal Head Start grantee, we also  compared funded enrollment, reported enrollment, and classroom  attendance. In the 5 months we reviewed, reported enrollment ranged  from a low of 41 percent of funded enrollment in June 2009, to a high of  100 percent in October 2009. According to OHS officials we spoke with,  Migrant and Seasonal Head Start grantees are only required to meet the  funded enrollment targets for any month of the grant period—unlike Head  Start grantees who are required to maintain funded enrollment levels  throughout their program year. We reviewed attendance records and  found that attendance was significantly less than reported enrollment.  Average attendance per month ranged from 22 percent to 69 percent of  reported enrollment. For example, in October 2009 an average of 57  students attended class, which was 22 percent of the reported enrollment  of 256 students. In August 2009 an average of 170 students attended class,  which was 69 percent of the reported enrollment of 247 students. We also  found that attendance on a single day ranged from 3 percent to 94 percent  of reported enrollment. (See table 3.)
As we have previously reported, the number of children and families  served by Head Start is an essential measure of the program’s impact. Yet  OHS lacks assurance that grantees actually serve the numbers of children  they report having enrolled and for which they are receiving funds. Under  the current definition of enrollment in Head Start regulations, grantees  could reasonably report full enrollment without providing services to the  number of children they were funded to serve. Reporting figures to the  Congress and the American public that do not represent children and  families to whom services have been provided fails to provide a  transparent measure of the important work undertaken by these  programs. In addition, without monitoring information on services  actually provided, OHS could miss opportunities to assist grantees that are  experiencing significant difficulties in their ability to serve the children  they have enrolled. Calculating attendance, which fluctuates, may be  challenging, but OHS already offers guidance on calculating average daily  attendance on its Web site. Moreover, in 2008 an advisory committee to  the Secretary of Health and Human Services specifically recommended  that attendance be considered along with other factors in determining  whether OHS should renew an individual grant or make the grant available  for competition among organizations. This recommendation has not been  implemented; HHS officials indicated that regulations governing the  redesignation system are under preparation. We recently recommended,  with respect to Head Start services being provided under the Recovery  Act, that OHS should collect data on the extent to which children and  pregnant women actually receive services from Head Start and Early Head  Start grantees. In response to this recommendation, OHS expressed  confidence that enrollment is a valid indicator of service delivery.  However, agency officials acknowledge that enrollment figures are only  accurate if programs are monitored closely on how they report these  figures. OHS officials told GAO that in Fiscal Year 2010 they began  monitoring enrollment figures in relation to attendance during on-site  reviews. Given our review of these two grantees’ attendance records and  related findings, we remain concerned that enrollment, particularly as  defined for monthly reporting purposes, could overstate actual service  delivery.

	Undercover Tests Suggest That the Head Start Program Is Vulnerable to Fraud and Abuse

Our undercover tests determined that some of the types of eligibility and  enrollment fraud schemes allegedly perpetrated by the two grantees are  likely occurring at other Head Start locations around the country. Posing  as fictitious families, we attempted to register children at Head Start  centers in California, Maryland, New Jersey, Pennsylvania, Texas,  Wisconsin, and the Washington, D.C., metropolitan area. Our 15 tests  mainly involved families that were not eligible for Head Start services. For  13 of these tests our fictitious families were over-income or had  disqualifying characteristics. For 2 additional tests, our fictitious families  did not have any disqualifying characteristics and were under-income.  These 2 tests were designed to determine whether a Head Start center  would count our fictitious children toward enrollment numbers even if our  children never attended the program. For all 15 tests, we contacted each  center in advance and were instructed in all cases to bring certain  documents necessary for enrollment, which included income  documentation.
In 8 out of 13 eligibility tests, our families were told they were eligible for  the program and instructed to attend class. In all 8 of these cases, Head  Start employees actively encouraged our fictitious families to misrepresent  their eligibility for the program. In at least 4 cases, documents we later  retrieved from these centers show that our applications were doctored to  exclude income information for which we provided documentation, which  would have shown the family to be over-income. Employees at seven  centers knowingly disregarded part of our families’ income to help make  over-income families and their children appear to actually be under- income. This would have had the effect of filling slots reserved for under- income children with over-income children. At two centers, staff indicated  on application forms that one parent was unemployed, even though we  provided documentation of the parents’ income. A Head Start employee at  one center even assured us that no one would verify that the income  information submitted was accurate. For the 2 tests in which our family  did not have disqualifying characteristics, we were accepted into the  program once and not accepted once because of a lack of openings. In the  test in which our eligible child was accepted into the program, the  scenario was designed to test how long the center would keep a child who  never attended the program on enrollment records before counting the  spot as a vacancy and attempting to fill it with another child. Because of  our concerns about occupying a slot for an actual child, we were forced to  contact the center and voluntarily withdraw our fictitious child before  sufficient time elapsed that would have allowed us to make a  determination regarding how long the center would have kept our child on  enrollment records. We monitored the centers where each of our fictitious  children had been accepted and when a center told us that there were  fewer than three vacancies, we subsequently called and withdrew our  fictitious child. Head Start centers may keep a child on enrollment records  for as long as 30 days even if the child has not attended class. All of our  fictitious children were withdrawn from the program before the 30-day  period had elapsed. However, the enrollment of our family that appeared  eligible for the program as well as our other successful tests highlight the  ease with which unscrupulous parents could fabricate documentation  designed to make it appear as though their children were under-income or  otherwise eligible for the program. Our fictitious pay stubs and W-2s were  made using information found on the Internet, commercially available  word processing software, and a printer and took only a few minutes to  create. At no point during our registrations was any of the information  contained in fictitious documentation submitted by our parents verified,  which indicates that the program is vulnerable to beneficiary fraud in  addition to grantee fraud.
Table 4 provides details on our approved applications, followed by our  unsuccessful applications. We withdrew our fictitious families from the  programs as soon as we documented that there were fewer than three  openings at a center. To view selected video clips of these undercover  enrollments, go to http://www.gao.gov/products/gao-10-1049/.
We also identified a key vulnerability during our investigation that could  allow over-income children to be enrolled in other Head Start centers:  income documentation for enrollees is not required to be maintained by  grantees. Under Head Start regulations, Head Start center employees must  sign a statement attesting that the applicant child is eligible and identifying  which income documents they examined, such as W-2s or pay stubs;  however, they do not have to maintain copies of them. We discovered that  the lack of documentation made it virtually impossible to determine  whether families enrolled in Head Start programs had provided accurate  information to Head Start centers. As a result of our testimony at the May  18, 2010 hearing, OHS issued guidance that suggested that grantees use a  standardized form to collect eligibility information, and that grantees  maintain copies of the eligibility documents that were reviewed. However,  given that Head Start employees in several of our undercover tests  reviewed family income documentation, and then chose only to record  part of the income on Head Start forms, we remain concerned that  ineligible children could receive services for which they are not eligible.

	Most Centers Maintain Wait Lists

We are concerned that eligible children at other centers do not receive  services for which they are in need, given the vulnerabilities to fraud and  abuse we found through our undercover tests. At 2 of the 8 centers where  we enrolled fictitious children that were not eligible for the program, we  were later told, after withdrawing our children from the program, that the  center was at full enrollment and was not accepting more children at that  time. During the course of our work, we contacted approximately 550  Head Start centers to determine whether they had space for our fictitious  children. We found that the majority of the centers stated that they had no  open slots for enrollment but maintained wait lists per program  requirements. We found that only 44 centers stated that they had any  openings. We interviewed 21 families on wait lists and found that the  majority stated that their income was at or below the federal poverty level.  In some cases, families had experienced some type of domestic violence  or were receiving some other type of public assistance, a group targeted  specifically for assistance by Head Start program guidelines. We did not  attempt to verify this information.

		Head Start Center Wait Lists Were Substantial

The length of these wait lists varied considerably; however, several of the  centers we contacted had lengthy wait lists. For example, one grantee we  contacted in Texas, which serves approximately 4,260 children in 36  centers, had over 1,150 children on its wait list. Another Head Start  grantee told us that it averages around 500 children on its wait list. A  representative from one Pennsylvania Head Start center we contacted  stated that there were around 120 applicants on the center’s wait list.  Furthermore, a review of media sources reveals that Head Start centers  around the country face similar challenges meeting their communities’  demand for services. We queried a news media search engine and found  numerous reports of lengthy waiting lists to enroll in Head Start programs  in many parts of the country. For example, according to one Florida  newspaper, the state of Florida has 8,000 students on wait lists for Head  Start programs. A newspaper in Indiana, reported that a program in  Indiana that serves 380 students has 170 students on the wait list. It is  important to note that we found a range of openings in the centers we  called. While several grantees reported that they had lengthy wait lists,  other grantees were eager to accept our fictitious, over-income children to  fill their rolls. The center in New Jersey that accepted our fictitious over- income family told us that it had more than 30 openings. Another center in  California, which did not accept our application, told us that it had 40 part- day openings. We did not validate the actual number of students on  waitlists in these centers.

		Eligible Applicants Cannot Be Admitted Because of Lack of Space

We contacted 21 families who at the time of interview were on wait lists  for Head Start programs. We received a list of 1,600 wait list applicants  from a Head Start grantee in Texas—of these, we attempted to call the 30  families who were at the top of the waitlist and we were able to speak to  11 families. We also received a wait list of 30 applicants for services in  Pennsylvania—we attempted to speak to all 30 families and of these we  were able to speak to 10 families. We asked applicants for information on  the length of time they spent on the wait list, on the family’s economic  situation, and whether they had been affected by being waitlisted for Head  Start services. Several of the applicants we spoke with described  circumstances that made them especially strong candidates for Head Start,  including receiving other types of public assistance, such as Medicaid or  Supplemental Nutrition Assistance, or having histories of domestic abuse.  Additionally, several applicants reported that family members were unable  to accept work opportunities as a result of not being able to enroll  children in Head Start, or experienced additional financial strain because  they had to pay child care costs. Many applicants also cited concerns that  their children would not be adequately prepared for school. Given the  relative ease with which GAO employees posing as fictitious parents were  able to qualify for Head Start services, it is possible that some over-income  or otherwise ineligible children are currently enrolled in Head Start  programs while low-income children are put on wait lists and do not  receive necessary services. For example, when a center manipulates  information to make it appear that an over-income family is a low-income  family this possibly takes up a Head Start slot set aside for a low-income  family. Although OHS does not currently collect information that would  allow it to determine what percent of Head Start centers have a wait list,  the majority of centers we called reported that they had a wait list. We did  not attempt to verify the applicants’ statements.

	Corrective Action Briefing

On April 20 and April 23, 2010, we briefed OHS and HHS officials on the  results of our undercover testing. Officials indicated that HHS would work  quickly to address the weaknesses we identified. We suggested a number  of potential actions the agency should consider to minimize Head Start  fraud and abuse, including the following:    Creating an OHS program management fraud hotline for individuals to  report fraud, waste, and abuse. These tips could be investigated by the  program, the HHS Inspector General, or both.
Establishing more stringent income verification requirements,  documentation requirements, or both by Head Start employees  responsible for certifying family eligibility, such as maintaining income  documentation provided by the applicant (e.g., pay stubs or W-2s).
Conducting undercover tests, such as the ones we describe in our  report, as a management oversight function.
In response HHS took a number of actions to strengthen program integrity  in general and the eligibility process specifically, including the following:  Issuance of a Program Instruction (PI) which stated that Head Start  employees who examine the documents and make a determination of  eligibility must sign a statement attesting to their review of the specific  documents and the determination that the child is eligible to  participate based on family income. The PI also encourages programs  to maintain copies of the eligibility documents with the eligibility  verification form in the child’s official record.
Implementation of a Web hotline for the purpose of reporting fraud  and fiscal mismanagement.
Review and analysis of the existing Head Start monitoring system to  ensure that (1) the verification of income eligibility is clearly  understood and fully implemented; (2) Head Start grantees are  providing regular training to employees who verify income; (3) Head  Start grantees have active waiting lists that, based on the Head Start  grantees’ selection criteria as mandated in the 2007 Head Start Act,  include income-eligible children as well as categorically eligible  children, such as families receiving public assistance and homeless  children and families; and (4) Head Start grantees are taking a closer  look at their recruitment efforts and the need for the reallocation of  slots.
HHS officials also indicated that the agency has moved expeditiously to  begin a rule making process to strengthen the regulations on the eligibility  verification process.
On September 14, 2010, we briefed OHS and HHS officials on the results of  our investigation of the Texas and Midwest grantees.
We are sending copies of this report to the Secretary of Health and Human  Services and other interested parties. The report will also be available at  no charge on the GAO Web site at http://www.gao.gov. If you or your staff   have any questions about this report, please contact me at (202) 512-6722  or kutzg@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) investigate the allegations of fraud and abuse at  these two Head Start grantees, (2) conduct undercover tests to determine  if other grantees were committing similar abuses, and (3) document  instances in which potentially eligible children were put on wait lists for  Head Start services at other centers.
To investigate the allegations of fraud and abuse we received through our  FraudNet hotline, we interviewed informants and the two Head Start  grantees in the Midwest and Texas. We reviewed grant documentation and  enrollment information reported to the Office of Head Start (OHS) by  grantees. We requested documentation from the grantees, including  attendance records, student files, and policy memorandums. We compared  attendance records to reported enrollment at the Head Start nonprofit  grantees in the Midwest and Texas. For each grantee, we analyzed daily  attendance records spanning 5 months of the 2009-2010 program year to  calculate average daily attendance and the highest and lowest attendance  on a single day. To evaluate homelessness determinations, we reviewed  information contained in family files against regulatory requirements. To  test in-kind donations recorded by the Midwest Migrant and Seasonal  Head Start program in the 2009-2010 program year, we compared grantee  records to requirements set out in Head Start statues and regulations.
To conduct undercover testing, we created fictitious identities and bogus  documents, including pay stubs and birth certificates, in order to attempt  to register over-income or otherwise potentially ineligible families and  their children at 13 Head Start centers located in California, Maryland,  New Jersey, Pennsylvania, Texas, Wisconsin and the Washington, D.C.,  metropolitan area. One of these centers was visited 3 times; we conducted  a total of 15 tests at the centers we tested. We also attempted to register  two eligible families and their children to determine if centers would count  these children toward reported enrollment numbers. We chose these  centers for two reasons. First, unlike about 500 centers we contacted that  could not confirm they had any openings, these centers indicated that they  had openings for new enrollees. We chose to focus on only centers with  openings to be sure we did not displace any actual, eligible children.  Second, they were located either in states with a significant proportion of  Head Start funding, in the same geographic area as a GAO office, or in the  same geographic area as the two programs accused of committing fraud.  We created 15 fictitious scenarios and used fabricated documentation  during our in-person applications. Our over-income scenarios involved  family incomes ranging from approximately $20,000 to approximately  $75,000. The scenarios were designed to determine if other Head Start  centers were engaging in actions similar to those that were the basis of the  allegations we received about centers in the Midwest and Texas. We used  publicly available hardware, software, and materials to fabricate our  supporting documentation. In situations in which our fictitious parents  were told to bring their fictitious child to class, we monitored centers by  making follow-up phone calls, to determine if centers still had openings in  order to ensure that we were not occupying a space that could be used by  an actual, eligible child. Subsequent to our applications, we requested, as  GAO, that the centers provide us all information regarding the submitted  applications and information as to whether these fictitious children ever  were counted on center attendance records.
In order to document situations of families waiting to enroll in Head Start,  we identified centers with wait lists through calls we made to  approximately 550 centers and contacted families on these wait lists. We  asked applicants for information on the length of time they spent on a wait  list, the family’s economic situation, and whether they had been affected  by being waitlisted for Head Start services. We did not attempt to verify  the accuracy of the information that families provided to us. We cannot  project the results of our investigation of allegations, undercover tests, and  family interviews to the entire Head Start program. We conducted our  investigation from October 2008 through September 2010 in accordance  with the standards prescribed by the Council of the Inspectors General on  Integrity and Efficiency.

Summary:
Why GAO Did This Study

The Head Start program provides child development services primarily to low-income families and their children. Federal law allows up to 10 percent of families to have incomes above 130 percent of the poverty line--GAO refers to them as over-income families. Families with incomes below 130 percent of the poverty line, or that meet certain other criteria, are referred to as under-income families. Nearly 1 million children a year participate in Head Start, and the American Recovery and Reinvestment Act provided an additional $2.1 billion. GAO received hotline tips alleging fraud by grantees. In response, GAO investigated the allegations, conducted undercover tests to determine if other centers were committing fraud, and documented instances where potentially eligible children were put on Head Start wait lists. On May 18, 2010 GAO testified on the preliminary results of the ongoing investigation. This report reiterates the findings disclosed in GAO's May testimony, and discusses new findings related to specific fraud allegations at two Head Start grantees. Since GAO's May testimony, HHS has taken a number of actions to address identified weaknesses, such as implementing a fraud hotline. HHS also indicated that it has moved expeditiously to begin a rule making process to strengthen the regulations on the eligibility verification process.

What GAO Found

GAO received allegations of fraud and abuse involving two Head Start nonprofit grantees in the Midwest and Texas. Two of the many allegations were substantiated. For example, one grantee inappropriately counted time parents spent helping children with homework as contributions to meet program funding requirements. While not fraudulent, we found that at both grantees, the average number of students who attended class was significantly lower than the number of students the grantees reported as enrolled in class. Realizing that the alleged fraud schemes could be perpetrated at other Head Start programs, GAO attempted to register fictitious children as part of 15 undercover test scenarios at centers in six states and the District of Columbia. In 8 instances staff at these centers fraudulently misrepresented information, including disregarding part of a family's income to register over-income children into under-income slots. The undercover tests revealed that seven Head Start employees lied about applicants' employment status or misrepresented their earnings. This leaves Head Start at risk that over-income children may be enrolled while legitimate under-income children are put on wait lists. At no point during our registrations was information submitted by GAO's fictitious parents verified, leaving the program at risk that dishonest persons could falsify earnings statements and other documents in order to qualify. In seven instances centers did not manipulate information. To hear selected video clips of GAO enrollments, see http://www.gao.gov/media/video/gao-10-1049/ . In addition, GAO found that most of the 550 Head Start centers contacted had wait lists. GAO also found that two centers where GAO enrolled fictitious children later became full and developed wait lists after the fictitious children had been withdrawn. Only 44 centers reported that they had openings. GAO interviewed families on wait lists from other centers and found that many stated that their incomes were at or below the federal poverty level. In some cases, families stated they had experienced some type of domestic violence, or were receiving some type of public assistance, which made them automatically eligible for Head Start. GAO did not attempt to verify family statements.