When child care fraud concerns arise, they often expose deeper challenges within complex, multi-layered systems that span state agencies, providers, and federal oversight. In many cases, issues related to fraud or improper payments are not the result of intentional misuse, but rather stem from fragmented processes, outdated systems, and administrative complexity. When systems lack real-time visibility into attendance, payments, and eligibility, even well-intentioned providers can struggle to comply, resulting in errors, audits, and disruptions to funding and services.

PCG’s brief, A Window of Opportunity on Child Care Fraud—If We Don’t Waste It, explores how a recent national response to fraud allegations revealed both the vulnerabilities within current systems and the unique opportunity to modernize them. Triggered by a viral video in late December 2025, followed by rapid federal action including funding freezes across multiple states, the issue quickly escalated from a technical concern to a national policy priority.

“Child care fraud is the exception, not the norm. Often investigations indicate that providers lack strong administrative and fiscal processes needed to support compliance with the requirements of public benefit programs. Many states and communities are working to expand technical assistance around business practices, shared services and data integration models which help support provider success and strong systems,” said Dr. Allison Comport, the author of the brief. “In recently attending the Opportunities Exchange Conference in Minneapolis, Minnesota, I had the opportunity to learn and connect with others about the ways states are right sizing child care licensing, strengthening monitoring systems and building systems to support provider processes and practices.”

In this case, longstanding audit findings had already identified gaps in attendance tracking and payment accuracy. When the viral video amplified public concern, and policymakers faced pressure to respond quickly, these streams aligned creating a powerful but temporary opportunity for reform. Across states, the immediate response was swift: funding pauses, audits, and proposed legislation aimed at tightening oversight.

While these actions address perceived risk in the short term, they often fail to resolve the underlying issues. The reality is that many providers operate under significant constraints:

• High administrative burden
• Staffing shortages
• Complex and inconsistent requirements
• Reliance on paper-based or outdated systems

As a result, payment errors are frequently driven by system limitations rather than intent.

Building Fraud Prevention into the System

Rather than relying on reactive enforcement measures, the brief emphasizes the importance of designing systems that prevent errors and fraud from occurring in the first place. Proven approaches include:

• Real-time electronic attendance tracking to eliminate manual errors
• Automated validation checks that prevent invalid or duplicate payments
• Secure identity verification systems
• Modernized data infrastructure to improve accuracy and transparency
• Clear guidance and training for providers

When issues are framed as crises, policy responses often prioritize speed over sustainability. However, short-term actions—such as funding freezes or increased enforcement—can create unintended consequences, including disruptions for families and additional strain on providers. Instead, this moment calls for strategic, long-term thinking. Child care fraud did not emerge overnight, and it will not be solved through short-term measures alone. The path forward requires:

• Leveraging proven solutions
• Addressing root causes rather than symptoms
• Balancing program integrity with provider support
• Acting decisively while the opportunity exists

By focusing on system design, modernization, and clarity, states can strengthen public trust, improve outcomes, and ensure that child care programs continue to serve the families who depend on them.

Learn more:

• Read A Window of Opportunity on Child Care Fraud—If We Don’t Waste It
• PCG’s Early Childhood Services
• Other PCG Insights and Thought Leadership