Childcare and parent services

Follow-Up Review Report No. 15-03

July 2015

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

Why we did this review
This follow-up review was conducted to determine the extent to which the Childcare and Parent Services (CAPS) program addressed the recommendations presented in our March 2013 performance audit (Report #11-18).
The 2013 performance audit assessed controls related to the identification of improper payments, questionable eligibility, fraud, and abuse to determine if they were adequate and operating as intended.
About CAPS
The 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.
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 the Department of Human Services during the time period of our original audit. The program was transferred to the Department of Early Care and Learning on July 1, 2012.

Follow-Up Review
Childcare and Parent Services
Action has been taken to improve
management of subsidized childcare program
What we found The Department of Early Care and Learning (DECAL) has taken steps to address all of the findings noted in our original audit of the Childcare and Parent Services (CAPS) program. The original audit noted the CAPS program's core activities faced a number of operational challenges. Due to the scale of these challenges, significant time and resources were necessary to fully implement the recommendations noted in the original audit. While some issues have not been fully addressed, DECAL has begun to establish internal controls to manage the program more efficiently and effectively.
DECAL has instituted a sampling process to verify childcare attendance. The verification process is currently performed by Maximus, the company that manages the CAPS data system. Maximus requests attendance records from approximately 60 childcare providers each month, and these records are compared with provider billing to identify discrepancies. Due to limitations in the way this verification is currently conducted and utilized, DECAL plans to make enhancements that will improve its usefulness to the monitoring process.
DECAL has improved internal controls addressing participant eligibility. The original audit noted inconsistencies in documentation requirements and the use of third party data for participant income verification. Additionally, nonstandard documentation, such as hand-written employer letters, was accepted as proof of income without additional verification. To improve eligibility procedures, DECAL has drafted new policies that provide guidance regarding documentation requirements. For example, nonstandard documentation is limited to cases involving

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new employment, and any letters must be on employer letterhead and include information such as hire date, hours worked, hourly rate, and employer contact information. Additionally, nonstandard documentation can only authorize eligibility for a six-week period. After six weeks, the participant must provide pay stubs or other acceptable documentation. Policies could be further improved by providing specific instructions regarding how case managers should review eligibility documents and when to seek additional verification through third party sources, such as the Georgia Department of Labor (GDOL) unemployment benefit and wage data.
DECAL has established internal controls to monitor for improper payments. DECAL created an Audits and Compliance Division, which is responsible for analyzing program data to identify improper payments. For example, the Audits and Compliance Division created a risk assessment that considers a variety of factors to identify providers for potential audit. DECAL has also instituted a policy to revoke the childcare license of any provider who has knowingly and willfully intended to defraud the CAPS program. To identify participants who may have provided inaccurate eligibility information, DECAL reviews employment and income information provided by participants and compares it to unemployment benefit and wage information from GDOL. DECAL noted that a recent comparison identified 33 individuals receiving unemployment benefits while reporting to DECAL that they were employed to qualify for CAPS benefits. These cases are currently under investigation by DECAL's Audits and Compliance Division.
DECAL and the Attorney General have collaborated to investigate and prosecute cases involving potential improper payments identified during the original audit. The Attorney General has obtained indictments in 20 CAPS participant and provider cases and expects indictments in another 5 cases by the end of July 2015. Additionally, GDOL indicated that it had collected $217,365 in unemployment benefit overpayments from 53 cases identified during the original audit.
The original audit noted that DECAL policies did not require criminal background checks for all individuals residing at informal childcare provider1 locations. In response, the General Assembly passed legislation requiring satisfactory national fingerprint-based checks on all employees of childcare providers and anyone that cares for children through or resides at a program receiving federal funds through DECAL for childcare. Furthermore, DECAL now compares addresses for new informal providers against the sex offender registry when the provider enrolls with CAPS.
Pending program changes have delayed DECAL's progress in addressing some recommendations. In November 2014, the federal Childcare Development Block Grant (CCDBG) was reauthorized, and the upcoming regulations will affect DECAL's administration of the CAPS program. DECAL has drafted an updated policy manual but does not plan to implement the new policies until the federal regulations are released to ensure state compliance with federal standards. As a result, case managers have not received the updated guidance and training necessary to fully strengthen eligibility determination procedures. Additionally, CAPS case managers, who determine participant eligibility, are being transferred from the Department of Human Services (DHS) Division of Family and Children Services (DFCS) to DECAL, although the time frame has not yet been determined. Once the transfer takes place, DECAL will implement a regular training plan for the case managers. DECAL also plans to centralize monitoring and tracking of improper payment claims in its Finance Division once the transition is complete. Currently, DHS has not centralized payment monitoring and tracking for claims against participants.
DECAL Response: "DECAL generally agrees with the [Department of Audits and Accounts'] assessment of our actions noted in the follow up report." DECAL noted that it had undertaken a comprehensive review of operations and administration

1 Informal providers are individuals, frequently a relative or neighbor, chosen by participants to care for their children. The care usually occurs in the children's or provider's home. Informal providers are not licensed by DECAL but must complete a criminal background check and health and safety inspection to become a CAPS provider.

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of the CAPS program and had taken significant actions as a result. DECAL also reiterated its belief that requiring employer FEINs, as discussed on page 7, significantly improves the quality of employer information in Maxstar.
DHS Response: DHS stated that it is awaiting the implementation of new policies by DECAL to implement recommendations such as case manager training. DHS also noted that it is working with DECAL on the claims process to determine whether a tracking system can be added to Maxstar. "DHS will continue to work with DECAL to ensure that any recommendations to improve the quality of the CAPS Program are implemented...."
The following table summarizes the findings and recommendations in our 2013 report and actions taken to address them. A copy of the 2013 performance audit report (#11-18) may be accessed at http://www.audits.ga.gov/rsaAudits/Download/15790.

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Original Findings/Recommendations
CAPS should improve key business processes that if not functioning properly impede its ability to effectively and efficiently manage the program.
We recommended that CAPS 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.

Current Status
Partially Addressed As discussed in the following findings, DECAL has taken action to improve key business processes in the CAPS program. However, some issues have not been fully addressed.
DECAL developed processes to continuously monitor CAPS participants and providers. Also, DECAL has improved its use of program data for program integrity purposes. DECAL also plans to enhance the capability of its data system, Maxstar.
While DECAL has drafted policies to improve guidance to case managers, these have not yet been finalized and communicated to case managers.

CAPS should implement a comprehensive system to verify childcare attendance reported by providers.
We recommended that DECAL develop a more regular and systematic process to ensure that childcare attendance reported by providers is accurate.
We also recommended that DECAL review the processes and controls other states have implemented to determine which processes have been the most efficient and costeffective and if they would be beneficial for the state to implement.

Partially Addressed To improve the system to verify childcare attendance, DECAL instituted a sampling process to verify attendance, developed training for providers, and assessed attendance tracking technology. While steps have been taken, improvements are still needed.
The current process to verify attendance is limited. Each month, Maximus selects a random sample of approximately 60 providers (2%) and requests attendance documentation to compare to billing records. However, provider compliance is inconsistent, and no sanctions are issued to noncompliant providers. According to DECAL staff, the verification process is primarily used to identify providers needing technical assistance, but the process also identifies high-risk providers that may be referred to DECAL's Audits and Compliance Division for additional investigation. DECAL indicated it plans to transfer the attendance verification process to the Audits and Compliance Division and better integrate the process into the Division's current activities.
To educate CAPS childcare providers, DECAL has also developed training on attendance tracking and reporting procedures and posted this training online. Currently, the training is not mandatory, and as of May 2015, approximately half of CAPS providers had participated in the training.
To improve reporting accuracy, DECAL has assessed available options for attendance tracking technology. Through meetings with vendors and conversations with other states, DECAL evaluated technology such as thumb print verification and swipe cards. Currently, no decision has been made to adopt a new attendance system, but the evaluation of technology is ongoing.

CAPS should strengthen procedures regarding verification of participants' employment and income.
We recommended that CAPS strengthen policies and procedures to provide case managers with guidance regarding how to review wage and income data. These instructions should define appropriate use of third party data for verification, as well as the

Partially Addressed DECAL has drafted policies to strengthen the eligibility determination process. The new policies could be improved by providing additional guidance for case managers regarding verification. Additionally, the policies have not been finalized. As a result, adequate case manager training has not been provided.
DECAL drafted new policies that better define the documents CAPS case managers must obtain to validate applicants' employment and income. Additionally, the new policies limit the use of nonstandard documentation, such as a letter from an

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Original Findings/Recommendations type of documentation and steps required to verify nonstandard documentation.
We also recommended regular training for case managers once policies and procedures have been updated.

Current Status employer, to cases involving new employment. Nonstandard documentation must meet certain requirements (e.g., include employer contact information) and can only authorize eligibility for a six-week period.
The policies could be improved by addressing when and how case managers should use data from third party sources, such as GDOL, for verification. Furthermore, the policies do not provide instructions for how to review provided documentation or an explanation of situations that require additional verification. According to DECAL staff, the final policies will include direction to case managers regarding the appropriate use of third party data, as well as discrepancies to consider when examining pay stub documentation.
Additionally, DECAL has delayed the implementation of the updated policies until federal regulations supporting the reauthorization of the CCDBG are released. As a result, case managers have not received in-depth training regarding the new policies. Preliminary training provided an overview of upcoming changes, but specific policies and procedures were not discussed.

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.
We recommended that the CAPS program reexamine the eligibility of participants and providers with questionable activities and determine if subsidies should be repaid. Furthermore, we recommended that GDOL review participants who reported employment to CAPS while collecting unemployment benefits, as well as any providers that may have reported wages incorrectly for unemployment insurance purposes. We also recommended that DECAL review exempt providers to determine if they are paid according to their exemption.

Partially Addressed DECAL, the Attorney General, and GDOL have taken action on cases of potential fraud.
DECAL and the Attorney General worked together to investigate and prosecute potential fraud identified during the original audit. DECAL referred 48 cases of potential CAPS participant fraud to the Attorney General. Of these, indictments have been issued for 19 individuals for charges such as making false statements and forgery. Indictments are currently being pursued for another five individuals and are expected before the end of July. DECAL also referred 11 cases of potential provider fraud to the Attorney General and the federal Department of Health and Human Services. An indictment was issued for one of these cases, and two others were turned over to federal prosecutors for potential criminal prosecution. DECAL has continued to refer additional cases to the Attorney General as they are identified by the Audits and Compliance Division.
According to GDOL, its Claims Division reviewed 110 cases identified during the original audit to determine whether unemployment benefits were paid improperly to CAPS participants. GDOL established claims totaling $270,654 in 53 cases, and it has collected $217,365 (80%). Additionally, GDOL indicated that it reviewed 337 CAPS providers identified during the original audit that may not have correctly reported wages for unemployment insurance purposes. The review determined whether the providers were registered with GDOL as employers, the initial step to reporting wages. The 83 providers (25%) that were not registered underwent further review to determine whether they were required to register under state law. However, GDOL did not conduct any additional review of the remaining 254 (75%). These CAPS providers were registered with GDOL but may not have reported all employees as required. According to GDOL, full audits of each provider would be required to fully address this issue, and GDOL did not believe that such audits

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Original Findings/Recommendations

Current Status were necessary. GDOL does conduct employer audits on a random basis.
To ensure providers are paid according to their exemptions, DECAL updated the Maxstar system to capture specific exemption types and to restrict payment authorizations based on the provider's exemption. For example, if a provider has an exemption that limits the children served to a specific age group, no CAPS payments can be authorized for any other age group. Additionally, annual site visits are now required for any exempt providers receiving CAPS funds.

The identification and recovery of improper payments could be improved through increased use of programmatic data and repayment collection methods.
We recommended that DHS and DECAL implement a comprehensive system of continuous monitoring to identify, track, and collect improper payments. This system should include the analysis of program and third party data, centralized reporting of improper payments, and additional collection methods.

Partially Addressed DECAL is analyzing program and third party data to identify potential improper CAPS payments. However, DHS has not centralized the tracking and monitoring of improper payments identified by its staff.
DECAL has developed processes to continuously monitor for participants and providers who may have received improper payments. DECAL's Audits and Compliance Division analyzes unemployment wage data from GDOL to evaluate the accuracy of participants' income information and identify cases for investigation. The Division has developed a risk assessment to identify providers for potential audit. The assessment considers factors such as adverse actions or risk areas in other programs, failed attendance verification, employment of CAPS participants, and licensing exemptions. DECAL recovered $1.4 million in improper payments from providers in fiscal year 2014, an increase of 38% over fiscal year 2013.
Tracking of improper payment claims has not been centralized by DHS. Because CAPS eligibility is determined by DFCS case managers, DHS has retained responsibility for improper payment claims for CAPS participants. Improper payments may be identified by DFCS staff during the eligibility recertification process or by DHS Office of Inspector General investigations. Each DFCS office is responsible for monitoring claims in its county by establishing repayment agreements and collecting payments. As noted during the original audit, improper payment claims are not tracked centrally by DFCS administration. DFCS does track payment collections, which totaled $254,000 in fiscal year 2014, a decrease of 19% from fiscal year 2013.
Additionally, DECAL considered imposing collection methods such as tax intercepts and liens but determined that it does not have the legal authority to do so. Statutory changes would be required to permit these collection methods. DECAL will consider pursuing the necessary legislation in the future.

DHS and DECAL should take steps to improve the quality of the data contained in the CAPS data system, Maxstar.
We recommended that DECAL identify and correct structural data issues in Maxstar to ensure that data is accurate and complete.

Partially Addressed DECAL has taken steps to improve the quality of Maxstar data. However, the completeness and accuracy of employer information should also be addressed.
DECAL has addressed several issues with Maxstar data that impaired program integrity efforts. DECAL established a method for distinguishing between social security numbers and system generated identification numbers. DECAL also instituted data validation processes to verify and correct social security

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Original Findings/Recommendations We also recommended that DHS provide training to case managers emphasizing the importance of data entry.

Current Status numbers and participant and provider addresses through comparisons with third party data. Furthermore, a planned enhancement to Maxstar will require case managers to enter a federal employer identification number (FEIN) during the eligibility determination process. According to DECAL, recent case manager training emphasized the importance of data quality and accuracy.
DECAL should address the quality of employer data. DECAL does not have a reporting process in place to identify blank or insufficient employer information. Additionally, the use of the FEIN will assist comparisons with third party data, such GDOL's unemployment database; however, it is unclear how nonstandard employment (e.g., self-employment) will be accommodated.

Fully Addressed The General Assembly passed legislation that strengthened the state's criminal records check requirements for childcare workers, including informal providers. Furthermore, DECAL now compares informal provider addresses to the sex offender registry.

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.
We recommended that DECAL consider requiring criminal background checks for individuals living at informal providers' addresses. Our analysis identified 18 address matches between informal provider locations and reported residences for registered sex offenders.

The General Assembly passed two pieces of legislation addressing criminal records check requirements. House Bill 350, passed in fiscal year 2013, requires a satisfactory national fingerprint-based criminal records check for all childcare center employees and directors. This check must be repeated every five years. House Bill 401, passed in fiscal year 2015, requires the same records check process for anyone that cares for children through or resides at a program receiving federal funds through DECAL for childcare. This change places both informal providers and anyone residing at the address of care under the records check requirement.
Additionally, DECAL compares addresses for new informal providers against the sex offender registry when the provider enrolls with CAPS. Staff indicated that DECAL plans to merge the informal provider comparison with the process used for licensed childcare providers. This automated process provides a comparison with the sex offender registry at least annually.

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.
We recommended that the Attorney General and DECAL 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.

Fully Addressed In response to the original audit, DECAL sought legal guidance for clarification on these issues.
DECAL consulted with the Attorney General, the Governor's Office, and the federal Administration for Children and Families (ACF) regarding participants not lawfully present in the United States. ACF provided guidance indicating that the child is the primary beneficiary of the subsidized childcare. Therefore, only the citizenship and immigration status of the child is relevant for eligibility purposes.
Additionally, DECAL indicated that "where appropriate, employers are required to follow the state and federal requirements under E-Verify to determine lawful presence." Under state law, all public employers, all contractors performing services for public employers, and all non-exempt businesses

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Original Findings/Recommendations

Current Status employing more than 10 employees must utilize the federal work authorization program known as E-Verify.

CAPS should consider revising its method for allocating childcare funds to ensure they are distributed using updated indicators of need.
We found that the method used by CAPS to allocate childcare funding was based on prior year spending and did not incorporate indicators of current need.

Fully Addressed DECAL is revising the CAPS funding formula to include need indicators comparable to those used by the federal government. The new formula will incorporate four variables: the population under 12, free and reduced lunch eligibility, childcare capacity, and the previous year's allocation. According to DECAL staff, preliminary redistribution trends show significant increases in funding for rural counties and highgrowth counties. DECAL plans to institute a hold harmless factor of 10% to prevent sudden changes in funding levels from affecting service delivery. The formula's implementation has been delayed pending the release of federal regulations.

9 Findings

3 Fully Addressed 6 Partially Addressed 0 Not Addressed

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)656-2180 or visit our website at www.audits.ga.gov.