Childcare and Parent Services

Performance Audit Report No. 11-18

March 2013

Georgia Department of Audits and Accounts
Performance Audit Division
Greg S. Griffin, State Auditor Leslie McGuire, Director

Why we did this review
The Childcare and Parent Services (CAPS) program subsidizes childcare for eligible low income Georgia families who need childcare in order to work or attend school. The CAPS program is funded through a combination of federal and state funds, and each state has a childcare subsidy program similar to Georgia's. A review of other states' and U.S. Government Accountability Office (GAO) audits revealed issues with subsidized childcare programs in a number of states. Based on these issues, we reviewed controls related to the identification of improper payments, questionable eligibility, fraud, and abuse to determine if the controls were adequate and operating as intended.
About CAPS
In fiscal year 2012, CAPS expended approximately $210 million ($54 million in state funds) subsidizing childcare for approximately 84,000 children. CAPS subsidizes up to 100% of the cost of childcare, and the CAPS subsidy is paid directly to childcare providers. Local DFCS case managers are responsible for determining participant eligibility. Eligibility is based on income and need for services. The CAPS program was administered by DHS during the time period of review. The program was transferred to DECAL on July 1, 2012.

Childcare and Parent Services
Improved business practices and
controls needed to ensure better
management of subsidized childcare
program
What we found
The Childcare and Parent Services program (referred to as CAPS) has not developed a comprehensive system of internal controls to effectively identify improper payments, questionable eligibility, fraud, or abuse. As a result, there is an increased potential for providers to bill for services not rendered, ineligible participants to receive subsidized childcare for their children, and inconsistent eligibility determinations to be made. These situations reduce program funds available for eligible participants who depend on childcare assistance to maintain employment or attend education programs.
The CAPS program's weak controls around attendance, employment, and income verification increase the risk of fraud, waste, and abuse. During our assessment of these processes, we identified potential cases of fraud or abuse that have been referred for further review to determine what actions, if any, should be taken. We found participants who appear to have provided false or incomplete information to support eligibility claims, as well as questionable employment practices by childcare providers. As it currently operates, the CAPS employment and income verification process is not adequate to ensure that applicants meet eligibility requirements.
Each provider is required to maintain a daily paper attendance record on which the participants manually sign each child in and out. Although the attendance logs are intended to support the invoices submitted by providers for payment, CAPS does not have

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a comprehensive process to ensure that written attendance records exist or contain adequate information to support invoices. We noted that daily attendance sign-in logs are vulnerable to improper manipulation.
Also, Georgia's method for allocating funds across the state is based on historical funding and is not adjusted for indicators of current need. Our analysis identified local DFCS offices that are potentially receiving a disproportionate share of CAPS funding when taking current need into account. However, while some offices may receive a disproportionately large share of CAPS funds, these offices are still able to expend their allocation. This is due to the number of potentially eligible participants exceeding available CAPS funds.
What we recommend As detailed throughout the report, CAPS should make better use of data and technology, improve guidance to case managers, and employ continuous monitoring to ensure that CAPS is operating effectively and efficiently.
Specifically, we recommend the following:
DECAL should develop a more regular and systematic process to ensure that attendance reported by providers is accurate.
CAPS policies and procedures should be strengthened to provide specific guidance to case managers regarding how to review wage and income data reported by applicants. Once a revised and strengthened employment and income verification process is developed, CAPS should ensure that case managers are thoroughly trained and provided refresher courses.
DECAL and DHS should review problems related to both participants and providers identified during our review to determine the appropriate action that should be taken. Also, these agencies should determine if any subsidized childcare received erroneously should be repaid.
DECAL should review exempt providers receiving subsidized childcare payments to ensure that CAPS is paying them according to their exemption.
A comprehensive system of continuous monitoring is necessary to identify and collect improper payments. Continuous monitoring and analysis of available program and third party data could lead to the identification of more improper payments and potential fraud cases. Implementing additional methods to collect improper payments, such as tax intercepts and liens against real and personal property may increase the amount of funds recovered from improper payments.
In order to develop a robust system to identify potential improper payments, questionable eligibility, and fraud or abuse, DHS and DECAL should ensure that data within the Maxstar system is accurate and complete.
DECAL has indicated that it intends to revise the CAPS funding formula and include factors of current need.
DECAL Response: We are committed to improved business practices, enhanced controls, and better management of the childcare subsidy program. Your observations and recommendations as expressed in the audit will help enhance the integrity and effectiveness of this program as we move forward. Also, as Commissioner I have called for a 30-35 member committee of stakeholders to comprehensively review CAPS policies over the next several months to provide recommendations to enhance the administration, integrity, fairness, and effectiveness of the program.
DHS Response: DHS indicated that it did not have any major disagreements with the report, and that it is the intent of DHS to work with DECAL to address the issues that have been presented in an effort to enhance efficiency and effectiveness as it relates to how services are delivered to the citizens of Georgia and to improve the overall internal control environment.

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Table of Contents

Purpose of the Audit

1

Background

1

CAPS Overview

1

History

1

Organizational Structure

2

Eligibility

3

Activity Data

5

Childcare Providers

6

Financial Information

7

ARRA Funding

8

Maxstar Data System

9

Findings and Recommendations

10

CAPS should improve key business processes that if not functioning properly

impede its ability to effectively and efficiently manage the program.

10

CAPS should implement a comprehensive system to verify childcare attendance

reported by providers.

11

CAPS should strengthen procedures regarding verification of participants'

employment and income.

12

DECAL, DHS, and GDOL, in cooperation with the Attorney General, should

continue their review of the instances of potential fraud or abuse we identified

during our audit to determine if actual fraud or abuse has occurred.

17

The identification and recovery of improper payments could be improved through

increased use of programmatic data and repayment collection methods.

27

DHS and DECAL should take steps to improve the quality of the data contained in

the CAPS data system, Maxstar.

30

DECAL should review its process related to provider criminal background checks

of informal providers to ensure that childcare is provided in a safe and appropriate

setting.

31

The Attorney General should determine if individuals who are not lawfully

present in the United States are able to meet the activity requirements of CAPS.

Also, the state should determine if CAPS meets the definition of a public benefit,

which would limit eligibility to those individuals who are lawfully present in the

U.S.

32

CAPS should consider revising its method for allocating childcare funds to ensure

they are distributed using updated indicators of need.

33

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Appendices

35

Appendix A: Objectives, Scope, and Methodology

35

Appendix B: Example of a Questionable CAPS Provider

39

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Purpose of the Audit
This report examines the Childcare and Parent Services (CAPS) program. Specifically, the audit's objectives were to determine the extent to which:
1. The Department of Human Services (DHS) has developed and implemented a screening process, including comprehensive verification procedures, to ensure that eligibility determinations are appropriate and consistent;
2. DHS and the Department of Early Care and Learning (DECAL) developed and implemented provider monitoring procedures to ensure that providers are following applicable policies and providing safe childcare; and
3. DHS has developed and implemented a process to ensure that payments to providers are appropriate.
This audit generally covered activity related to CAPS from fiscal year 2008 to fiscal year 2011 with consideration of earlier or later periods when relevant. During this time, CAPS was administered by DHS. Beginning on July 1, 2012, the administration of CAPS was transferred to DECAL. A more detailed description of the objectives, scope, and methodology used in this review is included in Appendix A. A draft of the report was provided to DECAL, DHS, the Department of Law, and the Georgia Department of Labor (GDOL) for their review, and pertinent responses were incorporated into the report. The Department of Law declined to provide a response.
Background
CAPS Overview CAPS subsidizes childcare for eligible, low income families who require childcare in order to work, attend school, or participate in a training program. CAPS is funded through a combination of federal and state funds. The majority of CAPS funding is from the federal Child Care Development Fund (CCDF), approximately $154 million in fiscal year 2012, with a state match of approximately $54 million. CAPS subsidizes up to 100% of the cost of childcare up to the current allowable state daily rate, which varies by age of child and childcare type. The CAPS subsidy is paid directly to childcare providers. If CAPS subsidizes less than 100% of the cost, the participant is required to pay a co-pay directly to the provider. Participant co-pay amounts are based on family income and the number of eligible children. For example, a family with an annual income of $19,000 and two eligible children would have a co-pay of $42 per week. Co-pay amounts range from $0-$185 per week.
History In 1990, Congress passed the Omnibus Budget and Reconciliation Act, which created the Child Care and Development Block Grant Act. In 1996, the federal government unified a fragmented childcare subsidy system with the creation of the Child Care Development Fund (CCDF). The CCDF is a block grant allotted to states by the Administration for Children and Families (ACF) of the Department of Health and Human Services. The goals of the CCDF are to:

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assist states in providing childcare to parents trying to achieve independence from public assistance;
allow each state maximum flexibility in developing childcare programs and policies that best suit the needs of children and parents in such state;
promote parental choice to empower working parents to make their own decisions on the childcare that best suits their family needs;
encourage states to provide consumer education information to help parents make informed choices about childcare; and
assist states in implementing the health, safety, licensing, and registration standards established in state regulations.
Organizational Structure From its inception in fiscal year 1997 through June 30, 2012, the CAPS program was administered by DHS. Beginning on July 1, 2012, responsibility for administering the CAPS program was transferred to DECAL as part of an effort to provide a more comprehensive approach to childcare services in Georgia. DECAL has nine full-time equivalent (FTE) positions at the state office responsible for administering CAPS. Positions include the program director, one administrative assistant, one planning and policy development specialist, and six business operations specialists. Exhibit 1 shows the multiple entities currently involved in administering CAPS.
Exhibit 1 Entities Responsible for Administering the CAPS Program
Childcare and Parent Services (CAPS) Program

Department of Human Services
(DHS)
Provides eligibility and investigative services for CAPS through a contract with DECAL.

Department of Early Care and Learning
(DECAL)
Responsible for administering the CAPS
program.

Local Division of Family and Children Services
(DFCS) Offices

DHS Office of the Inspector General (OIG)

Interfaces with participants and providers to determine eligibility and issue payment
certificates.

Establishes overpayment claims identified by
regional and county case managers.

Child Care Services Division
Licenses and monitors childcare providers.

CAPS Unit
Administers the CAPS program by managing contracts, setting policy and allocating funds.

Sources: DHS, DECAL

Maximus Inc.
Contracted by DECAL to process payments to childcare providers and
maintain and manage the case and payment
processing system called Maxstar.

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How CAPS Works
The Georgia CAPS program supports low income families and child protective services (CPS) clients in accessing safe and affordable childcare. Here is the process by which a person can obtain subsidized childcare.
1. Parent applies for the program online at compass.ga.gov. The parent must be employed or in an approved activity to be eligible.
2. A CAPS case manager calls the parent to process the application if funds are available. CAPS denies applications in absence of funding.
3. Applicants must supply documentation of their identity including their age, residence, and marital status. They must also document their employment, income, and the income of household members.
4. CAPS accepts a letter from an employer, paycheck stubs, or a form filled out by the employer to verify employment.
5. Eligibility is based on income. For example, a family of three can make no more than $2,213 per month to be eligible. In most cases, the family is responsible for a weekly co-pay to be paid to their provider.
6. Parent selects a childcare provider of their choosing.
7. Parents are eligible for up to a year before CAPS reviews their case. Parents are required to report any changes in their income or employment within 10 days.

Although DECAL now administers CAPS, DHS continues to provide eligibility and investigative services for CAPS through a contract with DECAL. DHS's Division of Family and Children Services (DFCS) employs case managers at local DFCS offices that interact with participants and providers. DFCS employs 134 case managers that exclusively manage CAPS cases. County DFCS offices also employ case managers who manage cases for a number of public benefit programs, including Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Nutrition Assistance Program (SNAP), and CAPS.
Eligibility Case managers collect a variety of documents (e.g., pay stubs, proof of residency) to assess whether or not the individual meets applicable eligibility criteria. Parents1 are initially eligible for up to one year, and eligibility is reviewed annually. Parents are required to self-report any changes in their eligibility criteria within 10 days.
The eligibility criteria are described below, but it should be noted that there are exceptions to the eligibility criteria that are not included due to the number of exceptions.
Eligibility of the Children- In order to be eligible for CAPS the children are: o legal citizens or have legal alien status; o under the age of 13 years; o under the age of 18 with special needs; or o under the age of 18 and under court-ordered supervision.
Residency- The CAPS participant must live in Georgia. The CAPS participant is approved by the local DFCS office in the county they reside.
Family Income- As shown in Exhibit 2 on the next page, a CAPS participant must not exceed CAPS income limits.
Need for Care- The parent must participate in one of the following approved activities to demonstrate a need for care. Each parent is required to participate for a minimum average of 30 hours per week if working or 24 hours per week if in training.
o Employment The parent must be employed and need childcare services to maintain the employment. The employment must be regular and predictable and pay at least the federal minimum wage.
o Job Search A CAPS participant who loses his/her job due to company closing or layoffs may receive childcare services for a maximum of eight weeks to conduct a job search if they are receiving unemployment benefits from the state of Georgia.
o Education Parents age 20 and under may be enrolled full-time at a middle or high school. Also, a minor parent may attend a GED class full-time.
o Training The parent is enrolled in and attends a vocational program leading to a specific job or career. This does not include
1 The term parents as used in this report include parents, guardians, or others responsible for children.

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online courses or enrollment in a degree program at a college or university. Subsidized childcare in support of training is limited to 12 months as a primary activity.

Exhibit 2 CAPS Income Limits for Determining Eligibility

Number in CAPS Gross Annual

Family Unit

Income Limit

1

$16,640.00

2

$22,400.00

3

$28,160.00

4

$33,920.00

5

$39,680.00

6

$45,400.00

7

$51,200.00

8

$56,960.00

9

$62,720.00

10

$68,480.00

11

$74,240.00

12

$80,000.00

Source: CAPS Policy Manual (as of 9/1/10)

Also, 14 groups of participants receive priority status. Priority participants include high school parents, DFCS custody cases, special needs children, and grandparent guardians. Because demand for CAPS subsidies has historically exceeded available funds, DHS reserves funds for priority applicants and accepts them before standard applicants. In addition, certain priority categories may have flexible eligibility criteria. For example, CAPS allows some child protective service (CPS) applicants to work less than 30 hours per week, waiving the normal activity requirement. CAPS also waives the income limit for some DFCS custody cases. As shown in Exhibit 3 on the next page, 9,434 (32%) of the approximately 30,000 active participants as of September 9, 2011 were priority cases, and approximately 3,500 (12%) of the 30,000 have flexible eligibility requirements.

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Exhibit 3 32% of CAPS Participants Had Priority Status as of September 2011

Priority Participants with

Flexible Eligibility

12%

Requirements (3,587)

Other Priority Participants (5,847)
20%
Standard Eligibility Participants (20,308)

68%

Source: CAPS Maxstar Data System by Maximus

Activity Data
As shown in Exhibit 4, approximately 68,000 CAPS participants received approximately $236 million in subsidized childcare in fiscal year 2011. The childcare subsidies were paid to approximately 6,800 childcare providers that provided childcare for approximately 121,000 children. The increase in the number of participants between fiscal year 2009 and 2010 was due to CAPS receiving federal American Reinvestment and Recovery Act (ARRA) funds, which expired on September 30, 2010.

Exhibit 4 CAPS Annual Program Activity Fiscal Years 2008-2011

Fiscal Year Participants Children Providers

Benefits1

2008

52,953

99,259

7,412

$186,460,810

2009

53,399

98,573

7,164

$178,198,849

2010

67,909

121,883

7,260

$226,385,908

2011

67,752

121,137

6,779

$235,532,065

1This amount represents payments made for childcare during the fiscal year and does not account

for childcare that may have occurred during the fiscal year but was paid afterwards.

Source: CAPS Maxstar Data System by Maximus

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Exhibit 5 shows statistics of active participants who were in the CAPS program for all of fiscal year 2011. Approximately 21% (14,272 of 67,752) of CAPS participants who received subsidized childcare in fiscal year 2011 did so for the entire year. The average participant received $6,866 of subsidized childcare and had an annual income of $17,851.

Exhibit 5
CAPS Participant Statistics Fiscal Year 20111,2

Annual Amount of Subsidized Care Annual Amount of Participant Co-Pays

Average $6,866 $1,658

Participant Annual Income

$17,851

# of Children

2

Age of Children

6

1Only cases that were active for all of state fiscal year 2011

have been included in this table (14,272 of 67,752). 2Priority Status cases have been included in this table.

Source: CAPS Maxstar Data System by Maximus

Childcare Providers CAPS is required by federal regulations to allow participants to choose the type of provider who cares for their child. DECAL is responsible for licensing and monitoring childcare providers in Georgia. The types of providers that parents may choose from are listed below.
Child Care Learning Centers (CCLCs) are programs operated by a person, society, agency, corporation, institution, or group that provides for group care. A CCLC cares for 19 or more children under the age of 18. CCLCs are required to be licensed by DECAL.
Family Day Care Homes (FDCHs) are programs that operate in a private residential home less than 24 hours per day. A FDCH may provide care for three children, but no more than six, under the age of 18. FDCHs are required to be licensed by DECAL.
Group Day Care Homes (GDCHs) are programs operated by a person, society, agency, corporation, institution, or group that receives pay for group care. A GDCH cares for seven to 18 children under the age of 18. GDCHs are required to be licensed by DECAL.
Informal Providers are individuals chosen by participants to care for their children while they work. The care usually occurs in the children's or the informal provider's home. An informal provider is often a relative or neighbor of the participant. Informal providers are not licensed by DECAL, but they must complete a criminal background check and a health and safety inspection in order to be certified as a CAPS provider.
Exempt Providers are programs providing group care for children that are exempt from DECAL licensing requirements because they fall into one of the 14 exempt categories such as summer day camp or a church-affiliated group.

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Exhibit 6 shows the number of children receiving subsidized childcare through CAPS and the total amount of subsidies by provider type.

Exhibit 6

CAPS Provider Activity by Type

Fiscal Year 2011

Provider Type Centers

Family Homes

Children

106,551

8,471

Benefits

$209,633,522 $12,910,731

Source: CAPS Maxstar Data System by Maximus

Exempt
4,241 $4,107,295

Group Homes
3,272 $5,141,969

Informal
3,183 $3,705,393

Financial Information
As shown in Exhibit 7, in fiscal year 2012, approximately $210 million was expended on CAPS. Of the total CAPS expenditures in fiscal year 2012, approximately 73% were federal funds, 26% were state appropriations, and 1% was lottery funds. Lottery funds are used to fund wraparound care for children in Georgia's Pre-K program, which is only six hours.
In state fiscal year 2012, 78% ($165 million of $210 million) of CAPS expenditures were directly on childcare. CAPS allocates funds to DFCS offices located in each of the state's 159 counties to provide subsidized childcare to the eligible residents of each county. The allocation of funds to each DFCS office is based on each office's prior year spending as a percentage of total subsidized childcare. For example, in fiscal year 2011 the DFCS office in DeKalb County was allocated 10% of the total statewide budgeted amount for subsidized childcare, which was based on DeKalb's fiscal year 2010 expenditure of 10% of statewide subsidized childcare expenditures. It should be noted that eligible individuals may not be accepted into CAPS once a county has expended its allocation.
In addition to the funds expended directly on childcare, approximately $25 million was provided to DECAL in fiscal year 2012, which is responsible for the licensing and monitoring of childcare providers, to improve the quality of childcare in Georgia. The remaining $20.7 million was expended on: a contract with Maximus to process payments to providers and manage the Maxstar system, which houses all program data; personal services costs for case managers who determine CAPS eligibility and other support staff (IT staff, budget staff, and regional managers); and administrative costs including but not limited to computers, real estate, telecommunications, and other regular operating costs. The CAPS program central office staff cost of $1.4 million is included in other administrative costs.

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Exhibit 7 CAPS Revenues and Expenditures Fiscal Years 2011 2013
2011 Revenues

2012

20134

Federal CCDF Grant1

$217,946,069

$154,460,931

$186,451,084

ARRA

24,528,094

0

0

State Funds

54,262,031

54,233,842

54,234,300

Lottery Funds

2,500,000

1,795,201

2,500,000

Total Revenue

$299,236,194

$210,489,974

$243,185,384

Expenditures

Direct Benefits

$238,492,509

$164,802,207

$193,102,505

DECAL DHS (for FY 2013)

35,720,428 N/A3

25,015,572 N/A

27,777,405 11,500,000

Maximus

4,275,012

4,327,653

4,275,012

Personal Services:

Case Managers

9,062,273

8,317,717

N/A

Other Administrative Costs2 (In CAPS

Program)

9,029,720

4,112,276

6,530,462

Other Administrative Costs2 (In Other DHS

Administrative

Programs)

2,656,251

3,914,549

N/A

Total

Expenditures

$299,236,194

$210,489,974

$243,185,384

1 Includes funds from Social Services Block Grant (SSBG). 2 Other Administrative Costs include Personal Services, Regular Operating Costs, Computers,

Real Estate, Telecommunications, and Other Contracts. 3 All N/As that appear in this table indicate that expenditures for this line item are reflected in other

line items. 4 Estimates

Sources: DHS, DECAL

ARRA Funding In April 2009, CAPS was awarded $82.8 million under the American Reinvestment and Recovery Act (ARRA). CAPS was required to spend the ARRA funds by September 30, 2010. The ARRA funds were used for three primary purposes:
Eligibility Expansion ($60.4 million) ARRA funding was used to provide Temporary Childcare Assistance (TCCA) to 16,596 children. TCCA provided childcare subsidies to parents who were unemployed or underemployed and participated in approved educational training and job training/searching activities. ARRA funding was also used to allow 9,429 children to attend Boys and Girls Club Summer Camp Programs throughout the state. ARRA funding was also used to provide childcare subsidies to 11,807 children whose parents were previously on the waiting list for the CAPS program.2 This eligibility expansion allowed some form of childcare subsidy for 38,661 children.
Quality Improvements ($22.3 million) DHS partnered with DECAL to fund activities that would increase the quality of childcare in Georgia. These
2 It should be noted that CAPS no longer maintains a waiting list.

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activities included training of childcare staff, purchasing equipment for 1,066 Pre-K providers, awarding scholarships to 512 childcare staff to obtain their Child Development Associates (CDA) credential, replacing the manual paper process to streamline oversight and monitoring of childcare providers, and funding a summer transition program allowing 829 low income children to attend Pre-K who were not able to during the school year.
IT Enhancements ($181,457) DHS used ARRA funds to make enhancements to the COMPASS on-line application system, such as allowing individuals to apply for TCCA on-line.
Maxstar Data System
CAPS contracts with Maximus for the maintenance and management of the Maxstar system which is used to process payments to childcare providers. In addition, Maxstar is the only central repository for all information related to the CAPS program. For example, the Maxstar database houses information regarding participants' eligibility, including employment information (such as employer name and wages), demographic information, and personal information (such as address and social security numbers) for the participant and his/her children. Case managers enter this information into the Maxstar system upon application, recertification, and the reporting of any changes such as job or wage changes. The system is also the central source for all information related to children being provided childcare, all information related to providers who provide the childcare, and records of payments from the state to the childcare providers. The audit team relied extensively on information from Maxstar to conduct multiple analyses, as well as to obtain activity data for the CAPS program.

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Findings and Recommendations
CAPS should improve key business processes that if not functioning properly impede its ability to effectively and efficiently manage the program.
Our review assessed key business processes related to CAPS eligibility determinations and payments to childcare providers. We found that CAPS has not developed a comprehensive system of internal controls to effectively identify improper payments, questionable eligibility, fraud, or abuse. As a result, there is an increased potential for providers to bill for services not rendered, ineligible participants to receive subsidies, and inconsistent eligibility determinations to be made.
Several overarching issues impact the effectiveness of key business processes: the limited use of data, limited system capabilities, and manual business processes. While CAPS collects a large quantity of data regarding its participants, CAPS has not effectively analyzed the data it collects, and a lack of capability within the data system limits the usefulness of the data. Although Maxstar is rich with data, the management information currently extracted from it is of limited utility. A lack of adequate management information impacts the program's ability to effectively manage and monitor its resources and operations. These limitations are discussed below.
Data not analyzed - While CAPS uses information contained in its data system, Maxstar, to manage the program, it does not regularly analyze the data to detect programmatic issues or to identify weaknesses in business processes. On a monthly basis DHS received a file containing activity data from the Maxstar vendor, but DHS had not reviewed or analyzed the data file for an extended period of time (according to DHS personnel up to two years) due to personnel cuts. As discussed throughout the report, we conducted analyses using Maxstar data to identify programmatic issues and to identify weaknesses in business processes.
Lack of system capability - CAPS lacks a management information system with sufficient capability and appropriate controls required to assist in operational decisions such as eligibility determination, and to effectively and efficiently manage and monitor CAPS. Maxstar was developed in the 1990's as a payment processing system for other states' childcare subsidy programs. Maxstar was purchased by Georgia as a payment processing system, and over time CAPS has expanded the Maxstar system to include other functions such as acting as the central repository for all eligibility information on CAPS participants. Because Maxstar was not designed as a case management or eligibility determination system, it lacks sufficient capability that would aid CAPS in improving and automating key business processes.

RECOMMENDATION As detailed throughout the report, CAPS should make better use of data and technology, improve guidance to case managers, and employ continuous monitoring to ensure that CAPS is operating effectively and efficiently.

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DECAL Response: Many changes or improvements are already in the works to address this recommendation. DECAL will continuously seek improvement and, specifically, will work to make better use of data and technology, improve training to case managers, and enhance our monitoring efforts.

Based on the finding and recommendation, DECAL will replace manual processes with automated eligibility determination functionality and produce data reports for analysis to reduce potential errors and increase the accuracy of data. CAPS policy is also being updated with clarification, procedures and requirements, third party verification, and program alignment that will support program integrity and improve key business processes.
DHS Response: Although DECAL is now the lead agency, DHS indicated that it directs case management staff responsible for determining eligibility and intends to support policy and procedural changes implemented by DECAL.

CAPS should implement a comprehensive system to verify childcare attendance reported by providers.

Improper payments include payments for
ineligible services, payments for services not rendered, and payments for ineligible participants.

Each provider is required to maintain a daily attendance record in which the participants manually sign each child in and out of the childcare facility. In order to receive payment, a provider reports attendance to CAPS through one of two methods. Providers either enter information for each child into a web-based electronic attendance sheet or mail in daily paper attendance records. In fiscal year 2011, approximately 94% of providers reported attendance electronically. However, CAPS lacks a regular and systematic process for ensuring that written attendance records exist or that they contain complete or adequate information to support payments to providers.
Attendance records are reviewed in cases in which DHS is investigating a potential improper payment. The majority of investigations of improper payments are in response to the DHS Office of Inspector General (OIG) receiving an allegation or complaint regarding a participant or provider from any number of sources, including case managers or other providers. In fiscal year 2011, DHS identified approximately $1.4 million in improper payments to providers and, according to personnel from OIG, a significant percentage of the improper payments were the result of providers who did not have daily paper attendance records that supported the electronic attendance sheets. Also, we found Wisconsin's childcare subsidy program had a similar attendance reporting system, and an audit of the program identified issues related to the providers' daily attendance records. Wisconsin found that some records
appear to have been fabricated or altered or to lack the care and accuracy that is required under program rules. CAPS personnel indicated that Maximus and the DHS Office of Inspector General (OIG) may conduct random audits of attendance in addition to the investigative process.

Because daily attendance sign-in logs are vulnerable to improper manipulation, other states have implemented electronic childcare attendance tracking systems. For example, Louisiana replaced its manual attendance log system with a biometric screening system and interactive voice response system. The biometric screening system records childcare attendance when a participant electronically checks his/her

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child in and out of care by scanning the participant's finger in a point of service device. The interactive voice response system records attendance when the parent calls a central phone number from the provider's land line to check in and out of care. According to Louisiana, the goal of the system is to provide efficient and more accurate payments to childcare providers and to reduce improper payments. Louisiana reported that after the biometric screening system was implemented they had a decrease of approximately 400 providers. In addition, billings for childcare by providers decreased by approximately $2-3 million per month. Comparatively, the subsidized childcare program in Louisiana is much smaller than Georgia's expending approximately $86.5 million annually and enrolling approximately 2,800 providers in fiscal year 2011. It should be noted that Mississippi is currently implementing a biometric screening system similar to Louisiana's.

RECOMMENDATION DECAL should develop a more regular and systematic process to ensure that childcare attendance reported by providers is accurate. DECAL should review the processes and controls other states have implemented to determine which processes have been the most efficient and cost-effective and if they would be beneficial for the state to implement.
DECAL Response: DECAL will enhance the monitoring efforts and controls around attendance verification and aggressively pursue prosecution for fraud. In considering improvements, we will evaluate and determine the feasibility of new technology or better use of existing capabilities.
Attendance documentation in an electronic or written format is a legal requirement for DECAL. Current practice includes requesting monthly provider attendance records to validate payments and using trend analysis reports for validation when facilities show a significant payment increase during a designated time period. Validating the accuracy and integrity of a payment is currently done after a provider has requested payment. Identifying cost effective technology solutions that detect attendance and billing discrepancies will be pursued.

CAPS should strengthen procedures regarding verification of participants' employment and income.
Because the majority of participants meet the CAPS activity requirement through employment, the employment and income verification process is a key component in determining eligibility. The CAPS policy and procedures manual does not provide sufficient guidance to case managers regarding the steps that should be taken to verify employment and income information. As a result, the level of verification and the methods used to verify a participant's self-reported information or information provided by a participant's employer varies between case managers and between DFCS offices, which may result in errors in the eligibility determination process.
When a participant's eligibility is based on employment, each parent is required to work a minimum of 30 hours per week to receive subsidized childcare. In addition, a participating family's gross annual income must not exceed certain levels. For example, the income limit is $22,400 for a family of two. The manual states that Income verification must be obtained and filed in the client's case record. In order to prove eligibility, participants submit employment and wage information to CAPS. The

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manual provides examples of income verification, such as four weeks of pay stubs, w2 forms, or a letter from an employer. However, the procedures do not require the case manager to independently verify the self-reported information. Any changes in income or employment are to be reported to CAPS by the participant within 10 days.
Interviews of local DFCS personnel and file reviews revealed that the lack of specificity in the verification process allows significant variation in the level of independent verification of employment and income by case managers and between local DFCS offices. For example, if a participant submits pay stubs as evidence of employment, one case manager may accept the pay stubs as sufficient documentation of employment, while another case manager may accept the pay stubs but also use independent sources, call employers, or request additional documentation to verify that the employment and income reported is true and correct. Exhibit 8 is an example of the inconsistency in the verification of employment and wages between case managers. As discussed in more detail in the pages that follow, eligibility determination errors, which result from either unintentional errors by case managers or the provision of misleading information by participants, can be mitigated by requiring the use of third party data and closer review of documents provided.
Exhibit 8 Example of Variation by Case Managers
A CAPS participant received a total of $2,275 in subsidized childcare for her child
from November 2008 to June 2011. At annual recertification in September 2010, this
participant reported an annual income of $21,387 to the CAPS program. She provided two
check stubs as verification of her employment and reported income. There is no evidence
that Case Manager 1 used third-party data such as DOL wage information or the Work
Number to verify her reported income. DOL wage information revealed that this participant
earned $11,468 from July 2010 to September 2010 (which is $45,872 when annualized).
Based on her family unit size of two, she would not have been eligible had her income
exceeded $22,400 annually. In the absence of using third-party information to verify
income, she was deemed eligible for participation in the CAPS program by her case
manager.
In October 2011, this same participant was due for recertification and again
reported an annual income of $21,387 to CAPS. This time Case Manager 2 accessed DOL
wage information and noted that she had a second job that was not reported to CAPS. Her
case manager also noted that she earned $11,795 from April to June 2011 (which is
$47,180 when annualized) based upon DOL wage information. Her case was referred to
the OIG and was pending investigation at the time of our review.

Use of Third Party Data Case managers have access to third party data, such as data maintained by the Georgia Department of Labor (GDOL), but not all DFCS offices require that it be used in eligibility determinations. GDOL maintains databases that contain information on wages reported by employers as well as individuals who are collecting unemployment. In addition, case managers have access to a private employment verification website called The Work Number, which shows wages

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paid and employment history for an individual as reported by participating employers (such as Wal-Mart and Target). However, we found that case managers do not consistently use third party data to verify employment and income information provided by a participant. Visits to a sample of DFCS offices, where eligibility reviews occur, revealed that some local DFCS offices consistently require their case managers to attempt to verify each participant's employment and income information using third party data, while other offices did not require verification using third party data. In addition, we noted inconsistencies within the same DFCS office. Exhibit 9 is an example in which a case manager did not use third party data to verify the income and employment of a participant and the participant received a significant amount of subsidized childcare despite potentially being ineligible because her income appears to have exceeded program limits.
Exhibit 9 No Third-Party Verification of Undated, Typed Letter
A CAPS participant received over $46,000 in subsidized childcare for her two
children from July 2007 to November 2012. In October 2011, this participant was
recertified for subsidized childcare based on her employment as an in-home caretaker.
She provided proof of employment in the form of an undated, typed statement from
her employer (see below). She reported an income of $17,680 and no other jobs.
There is no evidence that her case manager contacted this employer or used any
other means to verify her employment or reported income. According to DOL wage
information, which was available to her case manager, her income was $55,360 from
October 1, 2010 to September 30, 2011, and she was employed by a different
employer than she reported to CAPS. Based on her family unit size of four, her income
Aclimciet pwtoaunldcheavoefbNeeonn$-3S3t,a92n0d, amradkinDgohceur mineelingitbaletifoornthe CAPS program.

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We noted during our review of case files that participants may submit non-standard documents such as hand written letters (see Exhibit 10) or payment schedules, as opposed to actual pay stubs, as evidence of employment and income. The use of this type of documentation may be necessary in cases in which participants are selfemployed, paid in cash, or work for a small business. While the use of this type of documentation may be necessary, such documents have greater potential to not be legitimate. We noted examples in which non-standard or hand written documents were accepted by case managers with no documented follow-up regarding the accuracy of the self-reported information. In instances where non-standard documentation is submitted, a case manager could call the employer or attempt to verify employment and income through third party data. In addition, the case manager could request additional documentation such as a w-2, 1099, or the participant's tax return.3 By taking these actions, the case manager would not only verify reported information but also ensure through third party source, that there is no other non-reported employment. Exhibit 10 and Exhibit 11 are examples of selfreported questionable documentation.
Exhibit 10 Example of Non-Standard Documentation
A CAPS participant received over $37,000 in state subsidized childcare for
her three children between August 2007 and November 2012. She was approved to
receive subsidized childcare because she was employed. The only confirmation that
CAPS has of her employment is the handwritten notes from her employer (see below).
There is no evidence in the case file that the case manager called the number in the
letter to verify employment or checked GDOL data. GDOL has no record of her
employer reporting her as an employee. We were unable to determine if this
participant was eligible.

Source: DFCS case files
3 It should be noted that this type of documentation may not be as timely as income information from other sources, but could be useful to case managers making eligibility determinations.

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Exhibit 11 Additional Example of Non-Standard Documentation
A CAPS participant received over $45,000 in state subsidized childcare for her four children between November 2008 and October 2012. During her recertification in September 2010, this participant reported working for an assisted living center. When she underwent recertification in September 2011, she failed to return her employment verification request, and her case was closed. Her case was later reinstated in October 2011 when she reported that she had been working for her childcare provider since November 2010 and was paid in cash weekly. She provided a statement of employment and pay period summary letter from her provider as verification of her employment (see below). Her case manager also called her provider to verify her employment. However, DOL has no record of her provider reporting her as an employee as of September 2011. We were unable to determine if this participant was eligible.

Source: DFCS case files

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RECOMMENDATION The CAPS management should take the following steps to improve the effectiveness of its employment and income verification process to prevent ineligible applicants from receiving subsidized childcare.
1. CAPS policies and procedures should be strengthened to provide specific guidance to case managers regarding how to review wage and income data reported by applicants. This guidance should include direction on the appropriate use of third party data to verify information provided by participants as well as identify other sources of income not reported. In addition, CAPS should develop guidelines regarding the type of documentation that is required and when additional measures should be taken by case managers to verify employment and income when a participant submits non-standard documentation.
2. Once a revised and strengthened employment and income verification process is developed, CAPS should ensure that case managers are thoroughly trained and provided refresher courses.
Better guidance through more specific written procedures and regular training should help ensure that only eligible applicants receive subsidies, as well as greater consistency across 134 individual case managers and the decentralized administration for the program across 159 local DFCS offices.
DECAL Response: DECAL will strengthen and clarify the policies and procedures around income verification. Further, once revised, DECAL will develop and implement a critical and regular training plan for case managers.
In addition to changing policy to require documentation and to specify the type or frequency of income verification, the program will increase training requirements for case managers and case record reviews that will validate program accuracy. System reports for key eligibility indicators will be reviewed, modified, and used in regular program assessments and staff training.
GDOL Response: Information collected by GDOL in the administration of the UI program is available under O.C.G.A. 34-8-125 to other government agencies for verification of existing eligibility information and fraud prevention purposes.
Individuals can have earnings that are not reportable to GDOL. UI information can also be accurate but incomplete or contain inaccuracies because of exempt or excluded coverage, misclassification of workers as independent contractors, errors made by employers in their reports to the agency, inaccurate input of data, software/computer problems or other causes, whether known or unknown, and consequently, UI data may not be used to determine initial eligibility under non-UI programs.
DECAL, DHS, and GDOL, in cooperation with the Attorney General, should continue their review of the instances of potential fraud or abuse we identified during our audit to determine if actual fraud or abuse has occurred.
The CAPS program's weak controls around attendance, employment, and income verification increase the risk of fraud, waste, and abuse. During our assessment of

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these controls, we identified potential cases of fraud or abuse that are in need of further review to determine what actions, if any, should be taken. As discussed in detail below, we found participants who may have provided false or incomplete information to support eligibility, as well as childcare providers' whose employment of CAPS participants is in question. DECAL, DHS, and GDOL report that they have already begun reviewing the problems we have referred to them to determine what actions should be taken.
Initially, in order to assess controls around attendance, employment, and income verification, we performed a variety of analyses using electronic data. Based on the results of the analyses of electronic data, the audit team selected a judgmental sample of case files for review. Because the sample was not statistically valid or selected randomly, the results of our case file review cannot be projected to the entire population of CAPS participants. Specifically, we identified the following issues:
Unemployment Benefits We tested the general rule that CAPS participants, the majority of whom report that they are working in order to receive subsidized childcare, should not also be receiving unemployment benefits. Generally, a participant must work 30 hours per week with regular and predictable employment to meet the CAPS employment activity requirement. However, according to CAPS staff, there are circumstances in which a participant can meet the work requirement to receive subsidized childcare, even if he/she is collecting unemployment benefits at the same time. In this situation, the unemployment benefits should be counted in the participant's income in determining CAPS eligibility, thereby increasing the participant's co-pay for childcare services. However, according to GDOL, an individual employed 30 hours per week in regular and predictable employment should not receive full unemployment benefits.4
We identified 2,376 CAPS participants over a four year period who received more than eight weeks of subsidized childcare and full unemployment benefits during overlapping timeframes.5 Of the 2,376, we selected 18 participants (based on the amount of childcare subsidies and unemployment benefits received as well as whether or not they were still active) for a case file review. Of the 18 case files reviewed, nine did not contain any indication that the CAPS participant was also receiving unemployment benefits. While nine case files did contain information that the CAPS participant received unemployment benefits, the actions taken by the case managers were inconsistent from case to case. For example:
In five cases, the case manager took no action. The case manager allowed the participant to continue receiving subsidized childcare, and the unemployment was not counted into the recipient's income in three of the cases;
In two cases, the case manager referred the case to the OIG because the receipt of unemployment seemed to suggest that the participant was not actually working as the participant had reported;

4 Individuals receiving partial unemployment benefits were not included in our review. 5 CAPS participants whose eligibility is based on searching for a job are allowed up to eight weeks of CAPS subsidies while collecting unemployment benefits.

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In one case, the case manager closed the case because of the receipt of unemployment benefits, but the case was reopened when the participant provided evidence to her case manager that she was no longer receiving unemployment benefits. According to GDOL, the evidence provided did not indicate that the participant no longer received unemployment benefits, but was actually a check clearance confirmation. The case manager took no action to review the case to determine if the receipt of unemployment benefits had impacted the participant's prior eligibility.
In order to determine if case managers were including the unemployment income in the participant's income per CAPS policy, we identified participants that were receiving subsidized childcare as of June 27, 2011 while claiming to be employed and receiving unemployment benefits. We found 235 participants who met these criteria. Of the 235, we identified approximately 156 (66%) instances in which the case manager did not include the unemployment benefits in the participant's income as part of the eligibility determination. Exhibit 12 shows examples of 10 of these participants.

Exhibit 12

Examples of CAPS Participants Reporting Employment Found to be

Receiving Full Unemployment Benefits

Unemployment

Total

Participant

Benefits Payments1

Unemployment CAPS

Benefits

Payments

Total CAPS Benefits

Total Benefits

1

75

$9,537

80

$22,052 $31,589

2

76

$10,758

76

$18,498 $29,256

3

107

$25,630

102

$17,608 $43,238

4

72

$6,945

74

$17,401 $24,346

5

33

$7,473

30

$17,091 $24,564

6

90

$8,329

68

$16,536 $24,865

7

61

$12,426

57

$16,471 $28,897

8

101

$9,958

120

$14,717 $24,675

9

77

$10,269

62

$12,864 $23,133

10

62

$17,828

58

$12,178 $30,006

1Audit team did not have unemployment benefits payment data after 7/23/2011.

Sources: CAPS Maxstar Data System by Maximus, GDOL

We provided DECAL and GDOL with information on the 2,376 participants who, according to our data match, received subsidized childcare and full unemployment benefits during overlapping timeframes. DECAL and DHS should review the activities of these participants to determine if the participants' eligibility status should be changed to ineligible. Also, DECAL and DHS should determine if these participants should repay any funds received for subsidized childcare while ineligible. GDOL should review the unemployment benefits paid to these participants who claim to have been employed while collecting unemployment benefits to determine if any actions should be taken. Guidance should be provided to case managers regarding action to be taken when a participant who claims to be working is found to be receiving unemployment benefits or not actually working.

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Ineligible Income In order to test if a CAPS participant's self-reported income was accurate and did not exceed eligibility income limits, we compared CAPS participants' self-reported income to income their employers reported to GDOL for unemployment insurance purposes. Our comparison identified 699 CAPS participants during a one year period whose employer-reported income may have made them ineligible to receive subsidized childcare. According to GDOL data, these participants' income was over the income limits by an average of $5,366. Between October 1, 2010 and September 30, 2011, these 699 participants received approximately $2.4 million in subsidized childcare. We selected 28 of these participants' case files for a more in-depth review. As shown in Exhibit 13, the file review produced a variety of results.

Exhibit 13 Results of High Income File Review

Results of File Review

Number of Files Reviewed

Evidence of ineligibility due to

income was in the case file but not followed up on by the case

5

manager

Inconclusive

5

Incorrect SSN in CAPS electronic data

4

Evidence of eligibility was in the case file

4

Case closed due to ineligible income

4

No evidence that participant reported second job

3

No pay stubs to verify employment; only a letter

2

Pay stubs provided by

participant were not

1

representative of income

Source: CAPS Case Files and GDOL Data

Exhibit 14 is an example of a CAPS participant whose GDOL employer-reported income data exceeded CAPS income limits, suggesting that she may not have been eligible to receive CAPS subsidies.

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Exhibit 14 Example of a Participant with Ineligible Income
One participant received over $15,000 in state subsidized childcare for her two children between August 2010 and August 2012. She was approved to receive childcare in August 2010 based on employment with a local school system. She provided pay stubs from summer months as proof of her employment. These pay stubs indicated that she was paid $1,500 monthly ($18,000 annually). There is no evidence in the case file reviewed that her case manager took any steps to verify the reported income. According to GDOL data, she earned approximately $52,000 in wages from October 2010 to September 2011. Also, according to the Open Georgia website, her salary was approximately $49,000 for fiscal year 2011. This salary would have made her ineligible for subsidized childcare. She was an active participant as of August 2012. The audit team notified DECAL of the details of this case. DECAL referred the case to the Attorney General's Office.

While the CAPS policy manual states annual income limits, CAPS allows, in limited circumstances, participants to exceed the income limits. The CAPS policy manual states that pay periods that include overtime and/or sick leave that affect the amount of earned income are considered non-representative of the client's normal earnings and may be disregarded. We noted this policy may result in inconsistent determinations of eligibility. For example, an individual who exceeded the income limit by $2,000 due to a second job would be ruled ineligible, but an individual who exceeded the income limit by $2,000 due to overtime could be ruled eligible. In addition, the policy manual provides little guidance on the allowance of overtime income such as a maximum limit, and CAPS personnel have not determined the amount by which an individual could exceed the maximum allowable income limits (see Exhibit 2 on page 4) and still be eligible for the program. We were not able to identify if any of the 699 participants fall into this category.
We provided DECAL with a list of the 699 participants whose income appeared to have exceeded program limits, according to GDOL data. DECAL and DHS should review the activities of these participants to determine if the participants' eligibility status should be changed to ineligible. Also, DECAL and DHS should determine if these participants should repay any funds received for subsidized childcare while ineligible. DECAL should also ensure that case managers are trained to use the GDOL data they have access to so that applicants/participants whose income exceeds program limits are not determined eligible for the CAPS program. Clear guidance should also be provided to case managers on the allowance of nonrepresentative pay and the acceptance of non-standard documentation (such as hand written notes) as proof of employment.
Childcare Providers Employing Participants CAPS participants may be employed by the childcare provider that is providing care to the participants' children. In these cases, the childcare provider is responsible for producing the documentation used to determine the participant's eligibility (e.g., pay stubs or other proof of work) as well as producing and submitting the attendance records for the children served in order to receive payments from the CAPS program.

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It should be noted that the childcare provider is also required to report any employees and wages paid to those employees to GDOL quarterly for unemployment insurance purposes.6 Exhibit 15 shows the financial incentive of a childcare provider employing a participant or multiple participants. Given the potential financial incentive, and corresponding potential conflict of interest associated with childcare providers employing participants and billing for care provided to the participants' children, we identified 1,734 CAPS participants who reported their childcare provider as their employer from fiscal year 2008 through fiscal year 2011.

Exhibit 15

Financial Benefit of Childcare Providers Employing Participants

FY 11

Annual

# of

Annual

Benefits

Provider Participant Children Wages Paid

Paid

Net Result

A

1

7

$11,310

$34,172

$22,862

B

2

6

$13,982

$28,922

$14,939

B

3

5

$11,327

$26,104

$14,776

C

4

5

$11,310

$23,049

$11,739

C

5

5

$17,641

$25,220

$7,579

D

6

5

$12,885

$19,863

$6,978

E

7

4

$15,427

$22,158

$6,731

F

8

5

$15,171

$21,241

$6,070

G

9

3

$11,027

$16,326

$5,298

Source: CAPS Maxstar Data System by Maximus

We selected 56 participants who were employed by their child's provider for a more in-depth case file review. Based on this review, we found numerous questionable employment practices. For example:
28 of the 56 participants were not reported as employees to GDOL in the childcare providers' quarterly tax and wage reports. In several instances the childcare provider did not report any employees to GDOL. In other instances, the provider reported some employees but not the particular employee whose file we reviewed, raising questions as to whether the employee was actually working for the employer.
One of the 56 participants reported to CAPS that her children's provider provided her with fake pay stubs and instructed her to lie about her hours of employment with the provider. See the summary of Provider B on page 25 for details.
Six of the 56 participants reported they were paid in cash so the case file did not contain any pay stubs.

6 Certain providers may be exempt from these reporting requirements.

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15 of the 56 participants submitted questionable pay stubs. As shown Exhibit 16, these pay stubs were questionable for multiple reasons: some did not contain check numbers; some contained non-sequential or non-recurring check numbers; some contained incorrect FICA totals; some contained FICA totals or other withholdings that decreased as the year progressed; and some checks contained illogical dates.
Exhibit 16 Example of a Questionable Pay Stub

Same check number
for different
pay periods

Pay date 1 month after pay period

Pay date 1 day
after pay period

Source: DFCS case files

Should be $26.97 Should be $6.31

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Based on our analysis and file review of participants who were employed by their children's provider, we noted questionable practices by some of these providers. These providers may be facilitating their receipt of CAPS payments through questionable practices, such as potentially providing false employment or income documentation for participants, or paying employees/participants in cash and potentially not reporting the wages of their employees to GDOL as required. Exhibits 17-19 are examples of providers that exhibited multiple potentially questionable practices.
Exhibit 17 Example of Questionable Employment Practices by a Provider
Provider A
Provider A is licensed by DECAL to provide care for approximately 73 children. From fiscal year 2008 to 2011, Provider A received over $1 million in childcare subsidy payments from CAPS. Provider A reported six employees to GDOL for unemployment insurance purposes and is the provider to these participants' children. Two participants who report Provider A as their employer to CAPS are not reported by Provider A to GDOL for unemployment insurance purposes.
Participant 1 In September 2010 and September 2011, Participant 1 reports to CAPS that her employer is Provider A. The documentation provided to CAPS consists of the assistant director of Provider A reporting Participant 1's wages on a CAPS form. The assistant director states Participant 1 is paid in cash so there are no pay stubs. Participant 1 did collect unemployment benefits while reporting Provider A as her employer to CAPS. Provider A was paid approximately $100,000 in subsidized childcare payments between fiscal year 2007 and 2011 for Participant 1's seven children.

Participant 2 In November 2009 Participant 2 reports employment at Wendy's to CAPS and provides four bi-weekly pay stubs as documentation. In October 2010, Participant 2 is due for annual recertification and misses the recertification appointment, so the case manager closes the case and notifies Provider A that Participant 2's children are no longer eligible for subsidized childcare. Later the same week, Participant 2 faxes in documentation of employment with Provider A. The documentation provided to CAPS consists of the assistant director of Provider A reporting Participant 2's wages on a CAPS form. The assistant director states Participant 2 is paid in cash so there are no pay stubs. A similar sequence of events occurred at Participant 2's next annual recertification in October 2011. Provider A was paid approximately $30,000 in subsidized childcare payments from November 2008 through June 2011 for Participant 2's three children.

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Exhibit 18 Additional Example of Questionable Employment Practices by a Provider
Provider B Provider B is licensed by DECAL to provide care for approximately 61 children and from August 2009 to October 2012 received over $322,000 in childcare subsidy payments from CAPS for providing care to 75 children in the CAPS program. Provider B does not report any employees to GDOL for unemployment insurance purposes. However, three of the participants were eligible for CAPS based on employment with Provider B. Provider B was paid by CAPS for providing childcare to the children of these participants. Also, Provider B was noted to have no infants present during three DECAL monitoring visits. However, on the same day as two of these visits, Provider B billed CAPS for providing care to at least one infant. Participant 1 In April 2011, Participant 1 reports employment at Provider B to
document eligibility for CAPS program. The documentation of employment consists of the owner of Provider B reporting Participant 1's wages on a CAPS form. In January 2012, Participant 1 arrives for recertification appointment and reports that Provider B has been reporting attendance of children and hours of employment that are not true. Participant 1 states that her children have not attended Provider B since September 2011, but Provider B continues to bill for her children. Between September 2011 and January 2012, Provider B received over $2,600 in childcare subsidies for caring for the children of Participant 1. There is a note in Participant 1's file that several other participants brought in check stubs from Provider B that appear questionable. However, there is no evidence that any action was taken to follow up on these discrepancies. Also in April 2012 Provider B resumed billing CAPS for providing childcare to Participant 1's children despite the admission by Participant 1 in January 2012. Provider B was paid approximately $13,000 in childcare subsidies between March 2011 and August 2012 for Participants 1's three children. Participant 2 In February 2010 and February 2011, Participant 2 reports employment at Provider B to document eligibility for the CAPS program. The documentation of employment consists of handwritten payment ledgers and checks from Provider B. It should be noted that no FICA, state income tax, or federal income tax were withheld from the checks to Participant 2. Provider B received over $48,000 in subsidized childcare payments between May 2009 and April 2012 for providing childcare to Participant 2's five children.

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Exhibit 19 Final Example of Questionable Employment Practices by a Provider
Provider C Provider C collected approximately $200,000 in subsidized childcare payments between June 2010 and October 2012 by submitting invoices for childcare for 87 children. As detailed in Appendix B, Provider C has engaged in numerous questionable and potentially fraudulent practices. A contributing factor in Provider C's ability to engage in questionable activities was that Provider C was an exempt provider, which is not subject to regular inspection visits by DECAL. Exempt providers are discussed in more detail on page 6 of this report.

We provided DECAL and GDOL with a list of 309 childcare providers who claim to be employing CAPS participants but are not reporting them to GDOL for unemployment purposes. GDOL should review providers who may not have been correctly reporting wages for unemployment insurance purposes to determine if any action should be taken. DECAL should more closely monitor participants who are employed by their childcare providers given the potential financial benefits to childcare providers in employing participants and the other questionable practices we noted by these providers. DECAL should also monitor any exempt providers receiving subsidized childcare payments to ensure that CAPS is paying the provider according to their exemption. In addition, training should be provided to case managers to help them identify pay stubs that may be questionable (such as those with recurring check numbers or year-to-date totals decreasing as the year goes on).
RECOMMENDATION DECAL, DHS, and GDOL, in cooperation with the Attorney General, should continue their review of the instances of possible fraud or abuse that we identified during our audit. Specifically:
1. DECAL and DHS should review participants who potentially have questionable activities to determine if the participant's eligibility status should be changed to ineligible. Also, these agencies should determine if these participants should repay any subsidized childcare they received erroneously.
2. DECAL should review providers that have indications of questionable activities to determine if the providers should continue to participate in the CAPS program, as well as if the providers should repay any subsidized childcare they received erroneously.
3. GDOL should review the participants who claim to have been employed while collecting unemployment to determine if any actions should be taken. Also, GDOL should review the providers that may not have been correctly reporting wages for unemployment insurance purposes.

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4. DECAL should review any exempt provider that is receiving subsidized childcare payments to ensure that CAPS is paying the exempt provider according to their exemption.
DECAL Response: As noted in the audit, we have already turned over cases of suspected fraud to the Attorney General's Office. We will continue to do this as potential fraud is uncovered. We are also working with GDOL and other state and federal agencies to establish systematic strategies to prevent and detect fraud. We are taking an aggressive approach against fraud and are exploring options to increase enforcement and prosecution.
Also, effective November 2012, DECAL adopted new exemption rules to strengthen the previous process and the department continues to review and evaluate how best to proceed in regulating this area. DECAL also plans to conduct site visits in the future of exempt providers receiving CAPS subsidy dollars.
GDOL Response: This agency has already accessed data collected by your Department [Audits] in the [CAPS] program audit and is comparing that data with our agency [Unemployment Insurance] payment information for investigative action and prevention of improper benefit payments in the future. We are also reviewing the data indicating possible tax coverage issues for individuals and business entities. GDOL was unable to verify any of the specific examples discussed in the draft report due to the absence of individual and/or business identifiers.
The identification and recovery of improper payments could be improved through increased use of programmatic data and repayment collection methods.
Improper payments occur when a provider is unable to prove, through documentation, that the child actually was in attendance for the days the provider billed CAPS or when a participant was ineligible to receive childcare subsidies but childcare occurred.
Currently, the identification of improper payments is largely driven by an allegation or complaint regarding a participant or provider from a variety of sources such as a case manager or another provider. The investigation of improper payments is the responsibility of DHS's Office of Inspector General (OIG). OIG has approximately eight full-time equivalent (FTE) positions assigned to identifying and investigating improper payments. In fiscal year 2011, OIG established claims of improper payments due to provider actions totaling $1.4 million and improper payments due to participant actions totaling $1.3 million. OIG also negotiates repayment agreement with participants and providers. Once OIG establishes that an improper payment has occurred, the recovery of improper payments is the responsibility of CAPS.
Examples of the problems we identified with the identification and recovery of improper payments are discussed below.
Use of Data to Identify Improper Payments While OIG performs some data analysis to identify potential improper payments, the data analysis OIG performs is limited and focuses on payments to providers. For example, OIG reviews payment data to providers to determine if a provider received a significantly higher payment than previous billings without a corresponding

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increase in the number of CAPS participants served. OIG does not conduct any data analysis related to participant eligibility.
In contrast, our review of methods used in other parts of the country to identify improper payments and our own analyses revealed that better use of CAPS program data related to participant eligibility could increase the number of improper payments OIG identifies and recovers. For example, Los Angeles (L.A.) County, which administers California's childcare program in L.A. County, has developed data mining tools and predictive modeling that utilizes data from its case management system and various external sources to identify probable improper payments and potential fraud cases. In 2008-2009, this system identified fraud cases that lead to a savings of $6.8 million in cost avoidance. In addition, as discussed in the finding on page 17, we conducted a number of data analyses that identified a number of potential improper payments due to questionable eligibility for participants and questionable childcare providers. We identified these potential improper payments by data mining the CAPS information system and comparing CAPS data with various external data sources.
Identification by Local DFCS Offices
While case managers may identify improper payments in the course of their day-today duties, the subsequent actions by the case manager and system limitations impact identifying ineligible participants as well as the recovery of improper payments.
If a case manager identifies an improper payment due to actions by a provider, such as falsely reporting attendance, the case manager should forward the allegation to OIG. If a case manager identifies an improper payment due to the actions of a participant, such as a second job that caused a period of ineligibility,7 the case manager may forward the allegation to OIG or may document the amount of the improper payment and have the participant agree to repay the improper payment. Personnel in a local DFCS office indicated that in order to end ineligible childcare more quickly, they have the participant enter into a monthly repayment agreement with the local office. If the participant does not make a required payment within 30 days, the participant is suspended from receiving subsidies. If he/she does not make a required payment 12 days after being suspended, the participant loses eligibility. According to personnel in a local DFCS office, local repayment agreements are the quickest way to end childcare and more quickly allow eligible participants to enter the program since participants rarely repay any improper payments.
Repayment agreements established by any of the 159 DFCS offices are not tracked centrally by state program administrators. Because these repayment agreements are not consistently tracked centrally, other DFCS offices may not be aware of the agreement. In this situation, a participant may lose his/her eligibility in the county of the agreement due to lack of repayment but may acquire eligibility and receive childcare subsidies through another office because the case manager is unaware of the repayment agreement established in another DFCS office. During our review of case files, we noted a situation in which a DFCS office had revoked the eligibility of a participant due to lack of repayment. The participant applied for eligibility at an
7 In cases where an improper payment is made due to a period of ineligibility caused by the actions of a participant, the responsibility to repay the improper payment to CAPS is on the participant.

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office in a neighboring county. Although the DFCS office in the neighboring county became aware of the first office's repayment agreement, the original county could not produce sufficient documentation of the improper payment. Therefore, the second office granted eligibility to the participant. Because the repayment agreements made in DFCS offices are not consistently reported to the central office, we were unable to determine the number, dollar amount, and amount repaid of these agreements.
During our review of case files we also noted that case managers, typically during the recertification process, identified participants who did not meet the eligibility requirements. In these instances, the case manager revoked the eligibility and closed the case but did not determine when the ineligibility occurred during the year, if there were improper payments made, or the total amount of any improper payments. In addition, cases in which the participant may have received improper payments were not referred to OIG.
Collection
Currently, if there is an identified improper payment to a provider, CAPS recovers the funds by garnishing the future payments to the provider (usually 50% of future payments until the claim is paid). If the provider is no longer receiving CAPS payments, then CAPS attempts to enter into a repayment agreement with the provider. If there is an identified improper payment due from a participant, CAPS negotiates a repayment plan with the participant. In fiscal year 2011, OIG identified improper payments to participants totaling $1.3 million. CAPS recovered approximately $54,000 (4%) of the improper payments resulting from participant actions.
We noted that other states use a wide variety of methods to attempt to collect improper payments. For example, Wisconsin collects improper payments through levying of wages and bank accounts and liens against real and personal property. In addition, states may collect improper payments through a claim of state tax offset, which requests the Department of Revenue to collect the debt owed from an individual's state tax refunds.
RECOMMENDATION A comprehensive system of continuous monitoring is necessary to identify, track, and collect improper payments. Continuous monitoring and analysis of available program and third party data could lead to the identification of more improper payments and the identification of potential fraud cases. Consistent reporting to the central office of improper payments identified and collected by local offices would allow DHS to monitor improper payments identified by local offices and determine the number, dollar amount, and amount repaid. Implementing additional methods to collect improper payments, such as tax intercepts and liens against real and personal property, may increase the amount of funds recovered from improper payments.
DECAL Response: DECAL is reviewing and improving the methods and controls around continuous monitoring to better identify, track, and collect improper payments.
To aid in referring potential fraud cases, the claims process and procedures will be automated in the existing MAXSTAR system. This automated feature will also help the program to track and monitor the payment of claims and sanctions.

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DHS and DECAL should take steps to improve the quality of the data contained in the CAPS data system, Maxstar.
In order to conduct analyses to identify potential improper payments, questionable eligibility, fraud, or abuse, data contained in the Maxstar system should be complete and accurate. In conducting our data analyses and file reviews we noted data elements that were not complete or accurate. Below are examples of issues we noted with the completeness or accuracy of data elements within Maxstar.
System Generated Identification Numbers- If a participant does not provide a social security number, Maxstar generates an identification number for the participant. The generated number is a 9-digit number resembling a social security number and is not identified as a Maxstar system generated number. Therefore, it is difficult to determine if the number is a real social security number or a Maxstar-generated number. A key element in conducting data analysis looking for fraud or abuse is using a social security number to match data in separate databases. If the number is not valid, the difficulty of the data analysis increases significantly. Also, based on the data in Maxstar, data analysis cannot be conducted currently to determine if a participant submitted a false social security number or if the number was generated by Maxstar.
Employer- If a participant is working, the name of the employer should be included in Maxstar. We noted instances where the employer is blank or is listed as "work" or "cleaning service." This data is necessary to compare the reported employer to third party data sources to determine if participants are accurately reporting their employers. We also noted instances where participants were listed as working when they were not, as well as inconsistencies with the details of a second job.
Priority Status- As noted earlier in the report, certain participants are given priority status because of unique circumstances (such as a guardian caring for grandchildren, a high school parent, or an active TANF recipient). We identified multiple instances in which cases were not marked with any indicators of priority status in the Maxstar system, but the actual case file revealed that the case was a priority case. Since priority cases may be exempt from certain eligibility requirements the indication of priority status is important when conducting data analyses.
RECOMMENDATION In order to develop a robust system to identify potential improper payments, questionable eligibility, and fraud or abuse, DHS and DECAL should ensure that data within the Maxstar system is accurate and complete. DECAL should review the Maxstar data system in order to identify and correct structural data issues such as the identification numbers resembling social security numbers. DHS and DECAL could compare data, on a sample basis, contained in paper files to electronic files to identify inaccuracies. In addition, DHS could provide additional training and emphasize the importance of data input to case managers.

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DECAL Response: Additional training will be provided. Further, DECAL is in the process of correcting structural issues in the data, increasing our manual analyses for comparison, and modifying the current system capabilities to address this area.

The MAXSTAR system has been enhanced with separation between social security numbers and unique identifiers because federal regulations do not mandate use of social security numbers for determining eligibility. Cross matching of data sets and alignment has been completed, supporting provider identification and compliance.

DECAL should review its process related to criminal background checks of informal providers to ensure that childcare is provided in a safe and appropriate setting.

Informal providers provide childcare for two or fewer children in the child's or provider's home and are often a relative or neighbor. They are not licensed by DECAL but must complete a criminal background check and a health and safety inspection conducted by
DECAL.

The CAPS mission is to assist families in accessing safe and affordable childcare. In order to provide childcare in a safe environment, CAPS relies on DECAL's requirement that providers undergo criminal background checks. As noted earlier in the report, CAPS allows participants to use both licensed and unlicensed informal childcare providers. We found that while informal providers are required to complete a criminal background check, DECAL does not require criminal background checks or have knowledge of who may be living at the informal provider's address. In fiscal year 2011, CAPS made payments to 1,455 informal providers, who make up 21% (1,455 of 6,937) of providers paid by CAPS.
We compared the addresses of informal childcare providers who received payments from CAPS in the Maxstar system as of June 2011 to the addresses contained in Georgia's sex offender registry as of June 2011. We found 18 informal providers' addresses that matched an address where a registered sex offender was reported to reside. In one case, the informal provider was actively providing care while a sex offender resided at the address. In four of the 18 cases, it appears that care occurred at the same time the sex offender resided at the residence, but childcare was no longer provided at the address at the time of the address match. In 13 of the 18 cases, it appears that childcare provided at those addresses ended prior to the registration of a sex offender at those addresses.
Once this match was identified, we notified DHS (which was still responsible for administering CAPS at the time of our match). CAPS terminated the provider, notified the parent of the child, and made a referral to Child Protective Services since the child may continue to visit or frequent the home in question. DHS also notified the local law enforcement of the situation. CAPS also revised its policies to include comparisons of the addresses of informal providers to the updated addresses in the sex offender registry upon enrollment of the provider to ensure that a registered sex offender does not reside at an address where informal childcare is being subsidized by the state.

DECAL Response: Children's safety is a top priority of DECAL. We have strengthened this process as noted in the audit. Policies were changed to require an initial comparison upon enrollment of the informal provider against the Sex Offender Registry. We will continue to review for any additional areas of improvement. Also as noted in the audit, DHS took appropriate action when notified about issues with criminal histories. In the event of unsatisfactory, incomplete, or uninitiated criminal background checks in the future, or in the event of matches to the Sex Offender

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Registry, DECAL will promptly take necessary action, to also include notifying parents, child protective services, and local law enforcement, when appropriate.

The Attorney General should determine if individuals who are not lawfully present in the United States are able to meet the activity requirements of CAPS. Also, the Attorney General should determine if the CAPS program is considered a public benefit, which would limit eligibility to those individuals who are lawfully present in the U.S.

Public benefit is defined in Georgia law as certain
federal benefits, or benefits identified by the
Attorney General of Georgia. Examples of public benefits include food stamps, TANF, rent assistance or subsidy, and welfare to work.

According to CAPS personnel, as long as a child is lawfully present in the United States and has a social security number, the child is eligible for subsidized childcare through CAPS. As a result, the child may receive subsidized childcare even if the parent is not lawfully present in the United States. However, in order to be eligible for CAPS, the parent is required to have a need for childcare due to regular and predictable employment. It is unclear, given current state law, how a parent that is not lawfully present in the U.S. can legally have regular and predictable employment. According to CAPS data, as of September 2011, 90 participants were coded as immigrants not lawfully present in the U.S. 8
Also, Georgia's Illegal Immigration Reform and Enforcement Act of 2011 requires that in order to receive a public benefit the individual must be lawfully present in the United States. Georgia's Attorney General is required to annually prepare a detailed report listing public benefits. The August 1, 2012 Report of the Attorney General on Public Benefits does not specifically list the CAPS program as a public benefit. However, the report does list the Childcare Development Fund (CCDF), which funds CAPS, as a public benefit. Personnel with the Attorney General's office were unable to provide specific documentation for the reasons CAPS was not specifically included as a public benefit or whether it should be considered part of CCDF. While CAPS personnel contend that the children are receiving the benefit and are lawfully present in the United States, consideration should be given to the fact that the parent pays for childcare. Therefore, if the parent is receiving a subsidy, the parent is also receiving a benefit.

RECOMMENDATION Georgia's Attorney General and DECAL should review the CAPS program to determine if individuals not lawfully present in the United States are able to meet the activity requirements of CAPS and if CAPS is a public benefit.

DECAL Response: DECAL is currently working with the Attorney General's Office and the Governor's Office to make this determination.

8 We did not verify the accuracy of how these individuals were categorized in the Maxstar system.

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CAPS should consider revising its method for allocating childcare funds to ensure they are distributed using updated indicators of need.
CAPS allocates funds to DFCS offices located in each of the state's 159 counties to provide subsidized childcare to the eligible residents of each county, but Georgia's method for allocating funds across the state is based on historical funding and is not adjusted for indicators of current need. According to DHS staff, the original method for allocating funds to DFCS offices was determined years ago, and they were unable to provide any documentation or explain how the original method was developed. The allocation of funds to each DFCS office is based on each office's prior year spending as a percentage of total spending on subsidized childcare. For example, in fiscal year 2011 the DFCS office in DeKalb County was allocated 10% of the total statewide budgeted amount for subsidized childcare, which was based on DeKalb's fiscal year 2010 expenditure of 10% of statewide subsidized childcare expenditures.
The federal government allocates childcare development funds (i.e., the source of CAPS program funding) to states based on three factors: the amount allocated to the state historically under the Aid to Families with Dependent Children (AFDC) program; the percentage of the nation's population under the age of 13 residing in each state; and the percentage of the nation's children receiving free and reduced lunch in each state (referred to as the school lunch factor).
To determine the general impact of not taking into consideration indicators of current need, we compared the fiscal year 2011 percentage of CAPS funds each DFCS office received to the percentage of Georgia children that receive free and reduced lunch in each county (which is one factor for determining current need). The analysis identified local DFCS offices that are potentially receiving a disproportionate share of CAPS funding relative to the percentage of children on free and reduced lunch. For example, Gwinnett County's share of children eligible for free and reduced lunch is 9% and Fulton County's is 8.2%. Yet Gwinnett DFCS received 5% or $12 million of total CAPS funding while Fulton DFCS received 20% or $47 million of total CAPS funding. Exhibits 20-22 show the change in the number of children eligible for free and reduced lunch compared to the CAPS allocation for Gwinnett and Fulton.
It should be noted that while some counties may receive a disproportionately large share of CAPS funds, these counties are able to expend their allocation subsidizing childcare for eligible participants. This is due to the number of potentially eligible participants exceeding the available CAPS funds. While CAPS does not maintain a waiting list, from October 1, 2010 to August 31, 2011 CAPS denied approximately 46,000 potential participants due to a lack of funding. Allocating funds throughout the state based on need would allow potential participants equitable access to subsidized childcare, but it would not mean all eligible participants would receive subsidized childcare.

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Exhibit 20 Number of Children Eligible for School Lunch Subsidies 1995-2011

Exhibit 21 Comparison of CAPS Funding 2008-2011

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

Fulton

Gwinnett

Source: Kids Count

25%
20%
15%
10%
5%
0% 2008 2009 2010 2011 Fulton Allocated Share Fulton School Lunch Share Gwinnett Allocated Share Gwinnett School Lunch Share
Sources: CAPS Maxstar Data System by Maximus, Kids Count

Exhibit 22 Need-Based Budgeting- The Numbers

Free/Reduced Lunch Eligible
Actual CAPS Funding Funding Based on % of Free/Reduced Lunch

2011 Fulton
78,386 $47,358,028
$19,178,033

Difference

$28,179,995

Sources: CAPS Maxstar Data System by Maximus, Kids Count

Gwinnett 85,801
$12,005,380 $20,992,198 -$8,986,818

RECOMMENDATION DECAL has indicated that it intends to revise the CAPS funding formula and include factors of current need.
DECAL Response: After CAPS transferred to DECAL, we began carefully scrutinizing the method for allocating subsidy funds statewide. We are currently revising the allocation formula, keeping in mind indicators of need, stakeholder input, and mechanisms necessary to maximize the use of existing funds.

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Appendix A: Objectives, Scope, and Methodology
Objectives
This report examines the Childcare and Parent Services (CAPS) program. Specifically, our audit set out to determine the extent to which:
DHS has developed and implemented a comprehensive screening process, including comprehensive verification procedures, to ensure that eligibility determinations are appropriate and consistent;
DHS and DECAL have developed and implemented provider monitoring procedures to ensure that providers are following applicable rules and regulations and providing safe childcare; and
DHS has developed and implemented a process to ensure that payments to providers are appropriate.
Scope
This audit generally covered activity related to the CAPS program that occurred from fiscal year 2008 through fiscal year 2011 with consideration of earlier or later periods when relevant. Information used in this report was obtained by reviewing relevant laws, rules, and regulations, interviewing agency officials and staff from DHS, DECAL, and GDOL, analyzing data and reports from the Maxstar system, reviewing existing studies, and conducting site visits to eight local DFCS offices.
Data from the Maxstar system was used in all three objectives of our review. DHS contracts with Maximus for the development and maintenance of the Maxstar system. The Maxstar system is the only central repository of all CAPS program data, including information that informed eligibility determinations of CAPS applicants, information related to CAPS childcare providers and information documenting all payments made to childcare providers by the CAPS program. We acquired four fiscal years (fiscal year 2008 through fiscal year 2011) of data from the Maxstar system totaling over 20 million records in September 2011. The data from the Maxstar system was determined to be reliable for the purposes of our review based on interviews with agency personnel and personnel from Maximus, as well as a comparison of the data to other sources such as case files and federally required reports.
We also used data from GDOL in all three objectives of our review. Certain employers in Georgia are required to report employees and wages paid to employees quarterly to GDOL for purposes of determining the amount of unemployment insurance employers must pay GDOL and the amount of benefits former employees receive if they become eligible to receive unemployment benefits. We acquired five quarters (quarter ending 9/30/2010 to quarter ending 9/30/2011) of employer and wage information from quarterly tax and wage reports from GDOL to satisfy the objectives of this review.
Data from the Department of Revenue (DOR) was also used in the first objective of our review as a secondary source of information. DOR obtains Federal Adjusted Gross Income (FAGI) annually from residents of Georgia. We acquired the FAGI of participants in the CAPS program in calendar year 2010 since it was the most recent completed calendar year at the time of our review. Due to legal restrictions, information related to FAGI is prohibited from public disclosure in certain instances.

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As a result, confidential information related to FAGI has been omitted from the report. However this information was used in certain analyses conducted related to the income of CAPS participants and standard 7.39 of Generally Accepted Government Auditing Standards (GAGAS) requires that we disclose information omitted from the report due to legal restrictions.
GAGAS also require that we also report the scope of our work on internal control that is significant within the context of the audit objectives. All of our objectives address aspects of the CAPS internal control structure. Specific information related to the scope of our internal control work is described by objective in the methodology section below.
Methodology
To determine the extent to which DHS has developed and implemented a comprehensive screening process, including comprehensive verification procedures, to ensure that eligibility determinations are appropriate and consistent, we reviewed the policies and practices of verifying self-reported eligibility information to determine if assessments of eligibility were consistent. We also compared self-reported information on employment and wages of active CAPS participants to third party sources that also had this information to determine if eligibility determinations were appropriate.
The audit team used two different data sets from GDOL to determine the appropriateness of eligibility determinations. The first data set used contained information on the employers and wages of participants in the CAPS program. Participants' wages from the GDOL data (which were reported to GDOL by their employer) were compared to self-reported wage information to identify participants whose actual wages may not have been consistent with the wages they self-reported to the CAPS program. We used GDOL wages from quarter ending 9/30/2011 and self-reported wages contained in the Maxstar system as of 9/9/2011. The other GDOL data set we used contained information on unemployment benefits received by participants in the CAPS program who reported that they were employed. We compared the dates that participants received unemployment benefits to the dates that participants received subsidized childcare. These participants' eligibility was based on claim of work activity.
As noted above, data from DOR was used in certain analyses conducted related to the income of CAPS participants. However, due to legal restrictions the DOR data was not disclosed in the report.
All of the analyses using electronic data were conducted to identify deficiencies in the internal control structure of the CAPS program. Deficiencies in internal controls related to eligibility determinations are discussed in findings on pages 12 and 17 of this report. We assessed the controls over data used for this examination and determined that the data used were sufficiently reliable for our analyses; while we concluded that the information was sufficiently reliable for the purposes of our review, we did not independently verify the data.
The analyses conducted by the audit team were done to identify potential deficiencies in the internal control structure. The audit team then conducted file reviews and other analyses using a sample of the potential issues identified. Due to

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sample size and non-random sample selection, the results of our analyses cannot be projected to the entire population of CAPS participants.
To determine the extent to which DHS and DECAL have developed and implemented provider monitoring procedures to ensure that providers are following applicable rules and regulations and providing safe childcare, we interviewed representatives from DECAL who are responsible for licensing and monitoring of childcare providers in Georgia. We also compared the addresses of childcare providers to the addresses of registered sex offenders in Georgia to determine if childcare subsidized by the state was occurring in safe settings. In addition, we identified childcare providers who are providing CAPS participants with documentation of employment while not reporting those participants to GDOL as employees for unemployment insurance purposes.
Data from the sex offender registry maintained by the Georgia Bureau of Investigations (GBI) was used to identify potentially unsafe settings for childcare. We obtained the sex offender registry as of June 2011 from GBI to compare addresses of registered sex offenders to addresses where childcare was subsidized by the CAPS program.
Data from GDOL was used to identify providers who are providing CAPS participants with documentation of employment while not reporting those employees to GDOL for unemployment insurance purposes by comparing participants' reported employers as of September 2011 to those same reports of employees to GDOL as of September 2011.
The analyses related to the second audit objective were conducted to identify deficiencies in the internal control structure of the CAPS program. Deficiencies in internal controls related to provider monitoring procedures are discussed in findings on pages 11, 27, and 31 of this report. We assessed the controls over data used for this examination and determined that the data used were sufficiently reliable for our analyses; while we concluded that the information was sufficiently reliable for the purposes of our review, we did not independently verify the data.
To determine the extent to which DHS has developed and implemented a process to ensure that payments to providers are appropriate, we interviewed personnel from the DHS Office of Inspector General (OIG) who are responsible for identifying improper payments made by the CAPS program. We also reviewed improper payments identified by OIG from state fiscal years 2010-2012. We also reviewed other states' practices related to ensuring payments to providers are appropriate. In addition, the analyses conducted for the audit objective related to determinations of eligibility also relate to the appropriateness of payment to providers.
The fieldwork conducted for this audit objective was conducted to identify deficiencies in the internal control structure of the CAPS program. Deficiencies in internal controls related to appropriateness of payments are discussed in findings on pages 11, 12, 17, and 27 of this report.
We also reviewed the process used by CAPS to allocate funds to counties in Georgia to subsidize childcare. To establish criteria for this process, we reviewed the

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methodology used by the federal government to allocate childcare subsidy funds to states.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

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Appendix B: Example of a Questionable CAPS Provider
Provider C is an exempt childcare provider. According to the exemption application submitted and approved by DECAL, Provider C was approved to operate a summer day camp with a primary emphasis on outdoor education and recreation. Provider C began receiving childcare subsidy payments in June 2010. By the end of November 2011, Provider C had billed CAPS approximately $121,000 for providing childcare for 49 children. Even though Provider C was granted exempt status on the basis of operating a summer camp, Provider C received payments for 18 consecutive months. The location of Provider C's childcare facility had no certificates of occupancy or business licenses issued to Provider C. The clerk responsible for business licenses for the city recalled that Provider C's application was denied because the facility did not have a proper playground. The audit team visited the address of Provider C in May 2012 (see the image below).

Provider C employed 10 CAPS participants and was the provider to these participants' 19 children. Provider C did not report any of these employees to GDOL for unemployment insurance purposes. We reviewed nine participant/employee case files and noted questionable eligibility documents. Two of the participants submitted the same form letter, as shown on the next page, as proof of employment; one did not provide pay stubs; and two submitted highly questionable pay stubs (see page 42). One of the participants also collected 17 weeks of unemployment totaling $3,111 while reporting Provider C as her employer.

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Source: DFCS case files
In October 2011, DECAL received a complaint from a DFCS case manager that Provider C was operating outside of its exemption. DECAL investigated the complaint and cancelled Provider C's exemption in November 2011, and CAPS stopped payments to Provider C.
In the same month that DECAL received the complaint, Provider C was approved by DECAL to open another location as an exempt provider based on operating as a short-term educational program with a slightly different name. In December 2011 Provider C once again began billing CAPS for childcare occurring at this new location. Twenty-one of the children that Provider C was billing CAPS for at the original location were being billed for at the new location according to Provider C's billing records. Between December 2011 and October 2012, Provider C, billing from the new location, received $60,042 in childcare payments for providing care to 33 children in the CAPS program. The audit team visited this location in July 2012 during a week for which CAPS paid the provider and witnessed no childcare occurring at the location (see the image on the next page).

Childcare and Parent Services
Another business located here

41
Reported as 2nd location but another business' name on
building

Also in October 2011, one of the owners of Provider C, who was also a guidance counselor in a local school system making $50,000 annually, was accepted as a CAPS participant based on self-reported wages of $7.25 an hour working at Provider C. In April 2012, the second owner of Provider C was approved to become a CAPS participant based on wages of $7.25 an hour at Provider C.
In March 2012, the two owners of Provider C received approval from DECAL to open a licensed childcare center that they purchased. Between May and October 2012 Provider C's third location received $42,306 in childcare subsidies for providing care to 27 children in the CAPS program.
In total, Provider C received $223,922 for providing care to 109 children in the CAPS Program at three locations between June 2010 and October 2012. In October 2012, the audit team disclosed information related to this provider to DECAL and Georgia's Attorney General. DECAL dismissed Provider C from receiving childcare subsidies. An investigation is currently on-going.

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42

Example of Questionable Pay Stubs

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The Performance Audit Division was established in 1971 to conduct in-depth reviews of state-funded programs. Our reviews determine if programs are meeting goals and objectives; measure program results and effectiveness; identify alternate methods to meet goals; evaluate efficiency of resource allocation; assess compliance with laws and regulations; and provide credible management information to decision-makers. For more information, contact
us at (404)657-5220 or visit our website at www.audits.ga.gov.