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. 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 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 their slots with  children from families with income between the federal poverty line and  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 that  qualify under one of the primary eligibility criteria, are referred to as  “under-income” for the purposes of this testimony. 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 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 are currently investigating the two allegations of fraud and abuse that  we received involving Head Start nonprofit grantees in the Midwest and  Texas. In Texas, individuals we spoke with told us that the grantee  encouraged enrollment of over-income families in order to meet  enrollment requirements. We were able to confirm, through records  obtained from the grantee, that 9 of the grantees’ 28 centers had more than  10 percent over-income families enrolled. 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 families it enrolled were  over-income. Two families enrolled by this grantee had a reported income  in excess of $110,000. However, the grantee as a whole did not report  having more than 10 percent over-income families enrolled. 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,  therefore, we could not substantiate this allegation. Individuals we spoke  with also told us that Head Start staff encouraged parents to report that  they were homeless when they were not in order to qualify them for the  program. 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. Our concern, based on the allegation, is 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. In addition, we spoke with  several individuals who described a number of fraudulent activities that  they had witnessed. We are in the process of attempting to determine if  other allegations are true, including  classifying children as disabled when they were not,  counting children in enrollment figures after they had left the program,  and  allowing staff to use company vehicles for personal use.
For the Midwest Migrant and Seasonal Head Start program, we were able  to confirm through documents obtained from the grantee that more than  50 children were moved from one center to other centers with vacancies  during the last 60 days of the grant period. According to OHS regulations,  if fewer than 60 days remain in the grantee’s program year at the time a  child leaves the program, the grantee can choose not to fill the vacancy  without OHS considering the grantee underenrolled. By using this process,  the grantee was able to make records appear that both centers had  reached full enrollment, when in fact 63 children were counted at more  than one center. In addition, we spoke with several individuals who  alleged that numerous fraudulent activities were occurring at the program.  We are in the process of attempting to determine if other allegations are  true, including    manipulating family income documentation to make over-income  families appear to meet Head Start poverty guidelines,  enrolling families who do not meet the specific program requirements  for the Migrant Head Start program, including earning at least 51  percent of the household income through agricultural work and  migrating for work within the past 24 months, and    misappropriation of property purchased with Head Start funds.
It is important to note that ultimate determination as to whether these  allegations are true is a significant challenge because of the minimal  requirement for records requested of families to be maintained by  grantees. For example, there is no requirement for grantees to maintain  support for income, such as pay stubs and Internal Revenue Service Form  W-2. In addition, as the proactive testing in the next section discusses, and  as alleged, it is possible the grantee records have been fraudulently altered  including showing that children who are actually from over-income  families are under-income.

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

Our undercover tests determined that the types of eligibility and  enrollment fraud schemes allegedly perpetrated by the two grantees are  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. 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 our 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 in the other. In the test where 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. Due to 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. 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. 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. For all 9 cases in which we  were told that we were eligible for the program, we are taking steps to  determine whether our fictitious children were counted on enrollment or  attendance records.
Table 1 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 two  openings at a center. To view selected video clips of these undercover  enrollments, go to http://www.gao.gov/products/gao-10-733T.
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. According to HHS guidance, 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 only under-income children were enrolled in spots reserved for  under-income children.

	Eligible Children May Not Receive Head Start Services Because of Significant 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 9 centers where  we enrolled fictitious children, 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 only 44 centers  stated they had any openings. We interviewed 21 families on wait lists and  found that the majority stated 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 they average around 500 children on their 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. Another 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 discrepancy in enrollment levels among  the centers we called. While several grantees 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.

		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 were able to speak to 11  applicants. We also received a wait list of 30 applicants for services in  Pennsylvania—of these we were able to speak to 10 applicants. 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 enrolling 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 fraud committed by several grantees we investigated,  and the relative ease with which GAO employees posing as fictitious  parents were able to qualify for Head Start services, it is likely 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 takes up a Head Start slot set aside for a low-income family.  Table 2 summarizes the experiences of 10 applicants we contacted. 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 work. 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); and    Conducting undercover tests, such as the ones we describe in our  report, as a management oversight function.
Agency officials indicated that they would consider these suggestions.  They also told us that they would make sure that grantee staff received  training regarding the proper way to validate income documentation.
Mr. Chairman, this concludes my statement. I would be pleased to answer  any questions that you or other members of the committee may have at  this time.

	Contacts and Acknowledgments

For additional information about this testimony, please contact Gregory D.  Kutz 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 statement.
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Summary:
Why GAO Did This Study

The Head Start program, overseen by the Department of Health and Human Services and administered by the Office of Head Start, provides child development services primarily to low-income families and their children. Federal law allows up to 10 percent of enrolled families to have incomes above 130 percent of the poverty line--GAO refers to them as "over-income." Families with incomes below 130 percent of the poverty line, or who meet certain other criteria, are referred to as "under-income". Nearly 1 million children a year participate in Head Start, and the American Recovery and Reinvestment Act provided an additional $2.1 billion in funding. GAO received hotline tips alleging fraud and abuse by grantees. In response, GAO investigated the validity of 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. The investigation of allegations is ongoing. To perform this work, GAO interviewed grantees and a number of informants and reviewed documentation. GAO used fictitious identities and bogus documents for proactive testing of Head Start centers. GAO also interviewed families on wait lists. Results of undercover tests and family interviews cannot be projected to the entire Head Start program. In a corrective action briefing, agency officials agreed to address identified weaknesses.

What GAO Found

GAO received allegations of fraud and abuse involving two Head Start nonprofit grantees in the Midwest and Texas. Allegations include manipulating recorded income to make over-income applicants appear under-income, encouraging families to report that they were homeless when they were not, enrolling more than 10 percent of over-income children, and counting children as enrolled in more than one center at a time. GAO confirmed that one grantee operated several centers with more than 10 percent over-income students, and the other grantee manipulated enrollment data to over-report the number of children enrolled. GAO is still investigating the other allegations reported. Realizing that these 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 the families' income to register over-income children into under-income slots. The undercover tests revealed that 7 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 7 instances centers did not manipulate information. To see selected video clips of GAO enrollments, see http://www.gao.gov/products/gao-10-733T . In addition, GAO found that most of the 550 Head Start centers contacted had wait lists. GAO also found that 2 centers where it 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, a group automatically eligible for Head Start. GAO did not attempt to verify family statements.