The US Department of Health and Human Services (HHS) has announced the repeal of a rule established during the Biden administration that allowed child care centers to receive federal funding without verifying children’s attendance. This decision, confirmed on Monday, comes amid allegations of significant fraud in the system, as reported by various sources including The Washington Post.
The rollback will restore “attendance-based billing,” meaning that states cannot pay child care centers upfront without verifying actual attendance. This change also removes the preference for facilities with pre-existing contracts over those accepting parental vouchers. Between 2021 and 2024, the Administration for Children and Families allocated more than $91.8 billion from its Child Care Development Fund (CCDF), a federal program designed to support child care facilities across states, US territories, and tribal areas. Notably, $56 billion of that amount was distributed in 2021 alone, coinciding with the height of the COVID-19 pandemic.
The new regulations will take effect on April 30, 2024, and it is estimated that nearly $24 billion in taxpayer funds may have been spent under the previous rule before this adjustment. HHS Secretary Robert F. Kennedy Jr. stated, “Congress appropriated this funding to support working families and ensure children have safe places to grow and learn. Loopholes and fraud diverted that money to bad actors instead. Today, we are correcting that failure and returning these funds to the working families they were meant to serve.”
In response to concerns about potential fraud, HHS has frozen all future funding from the CCDF until states can verify that no fraudulent activities have occurred. HHS Deputy Secretary Jim O’Neill emphasized the risks associated with prepayment based on paper enrollment, saying, “Paying providers upfront based on paper enrollment instead of actual attendance invites abuse.”
Minnesota has emerged as a focal point for allegations regarding fraudulent practices in child care funding. A viral video by YouTuber Nick Shirley claimed that nearly a dozen day care centers in the state received $111 million in federal funding while allegedly failing to care for any children. Follow-up investigations by The Washington Post and the Minnesota Star Tribune indicated that less than half of the centers visited by Shirley had children enrolled at the time of his visit.
Despite the allegations, state Democrats, including Governor Tim Walz, have dismissed the fraud claims. Walz announced just before the HHS decision that he would not seek re-election, citing his desire to focus on defending Minnesota against those who exploit the system.
An audit conducted by HHS’ Office of Inspector General (OIG) over a decade ago revealed that states, including Minnesota, had made tens of millions of dollars in erroneous payments to child care centers. In fiscal year 2012 alone, Minnesota flagged over $16 million in improper payments, which accounted for roughly one-fifth of all program funds. The audit criticized state officials for failing to disqualify any centers or refer violations to law enforcement. It also revealed that Minnesota officials did not adequately monitor billing practices or conduct necessary on-site visits.
HHS plans to reinstate funding for Minnesota child care centers only after the state provides “a receipt or photo evidence” for all payments and completes a comprehensive audit. Prosecutors recently estimated that fraud across all federal programs in the state could reach as much as $9 billion.
On Capitol Hill, three Republican state representatives from Minnesota are scheduled to testify regarding the fraud allegations. State Representative Kristin Robbins remarked, “The red flags are obvious,” pointing to multiple services provided by a single provider as a factor in the apparent misuse of funds.
The Trump administration will allow a 30-day public comment period before the revised rule is enacted. HHS has already established a hotline that has received 245 reports of potential fraud, according to officials. Alex Adams, Assistant Secretary for Family Support, added, “When controls are not in place, bad actors can bill for children who aren’t there. Families and taxpayers deserve proof that services are being delivered to children.”
