Our review of 86 authorizations for income-eligible childcare subsidies revealed that South Shore Stars, Inc. (Stars) did not make proper eligibility determinations for 17 authorizations and that it made additional errors entering data in the Child Care Financial Assistance (CCFA) database for 14 authorizations. As a result, the Department of Early Education and Care (EEC) made childcare payments to Stars for families that may not have been eligible; copayments from families, and payments from EEC to Stars, might have been incorrectly calculated; and eligible families on EEC’s waitlist may have had their childcare needs delayed or unmet. In addition, some families received childcare without attesting that the information and documentation provided were correct and complete and that they agreed to pay the calculated copayments.
Regarding the 17 authorizations with inaccurate eligibility determinations, we found hardcopy subsidy files with one or more errors or omissions. Eight authorizations had errors involving verification of Massachusetts residency, 14 had errors involving need for service, 11 had errors involving income, and 1 had an error involving the child’s citizenship.
The CCFA processing errors with 14 authorizations consisted of omitted or miscalculated income, incorrect determination of need for service, and missing or incomplete applications and fee agreements.
Twenty-seven of the authorizations in our sample of 86 were approved by Stars between February 15, 2019 and November 30, 2019. Our examination of these 27 authorizations’ files and CCFA information indicated that no errors were made regarding the enrollees.
Criteria for obtaining EEC-subsidized childcare are set forth in Sections 10.03 and 10.04 of Title 606 of the Code of Massachusetts Regulations. EEC has supplemented these regulations with the policy guides discussed in the “Audit Objectives, Scope, and Methodology” section of this report, which provide additional guidance on implementing the regulations. The eligibility requirements include the following:
- Massachusetts state residency: acceptable documentation includes lease agreements, property tax bills, vehicle registration cards, and utility bills
- family composition, size, and relationship to child: usually established by birth certificates, court orders establishing guardianship or custody, or Social Security benefit records
- citizenship or immigration status of child: established by birth certificate or United States passport
- need for service:7 acceptable documentation includes pay stubs, educational enrollment verification, verification of active deployment, and proof of disability or special needs
- income at or below certain state median income amounts: acceptable documentation includes pay stubs, income tax returns, Social Security benefit records, and public assistance documentation
- childcare application and fee agreement: must be completed and signed by parent/s or caregiver/s before the child starts subsidized childcare.
EEC also provides guidance in the Financial Assistance Procedures Manual for Subsidy Administrators regarding implementing the above regulations. Section 3.1.1(D) of this manual requires childcare providers to enter complete authorization information in CCFA. CCFA calculates a copayment to be paid by the family based on the information entered.
Reasons for Issue
Stars had not implemented monitoring controls over review and approval of the eligibility information obtained and entered in CCFA, nor did it have internal procedures defining the responsibilities of each enrollment staff member. For example, eight errors8 were related to files that were processed by the previous enrollment director without secondary review by a Stars employee. These eight errors involved processing of applicants with missing or incomplete documentation related to residency, need for service, and/or income. Because there was no secondary review, the errors went undetected.
In addition, Stars did not use EEC’s Early Education Subsidy Authorization File Checklist, which lists the documentation that must be obtained before a family can be deemed eligible for childcare. Stars enrollment staff members also told us they sometimes approved eligibility without complete documentation, with an understanding that the parent or caregiver would produce the required documents later, but documentation either was not produced in a timely manner or was never produced.
- Stars should develop and implement procedures and effective monitoring of internal controls to ensure that the information entered in CCFA is correct.
- Intake staff members should obtain sufficient proof of income, child identity and residency, family composition, child citizenship/immigration status, and need for service, as well as completed applications and fee agreements.
- Stars should implement EEC’s Early Education Subsidy Authorization File Checklist.
In its response, Stars gave us additional information regarding the improper activities conducted by its former enrollment director. Stars’ points included the following.
- Once Stars discovered the alleged fraud, it immediately reported this problem to the police, EEC, legislators, and its independent auditor, among others.
- Stars conducted a thorough two-month internal investigation.
- EEC performed a background check of the former enrollment director after Stars hired him and found him to be suitable to continue in his position.
- The former enrollment director used his position at Stars to override the controls that were in place over eligibility determinations for subsidized childcare.
- Past reviews by EEC and Stars’ independent auditor did not identify any irregularities in the area of eligibility determinations for subsidized childcare.
- After the former enrollment director’s improper activities were identified, Stars implemented a number of additional internal controls over eligibility determinations for subsidized childcare.
Stars also provided the following comments in response to the audit finding.
At the initial meeting with the State Auditors, in the Fall of 2019, Stars Executive Director stated that she expected that they would find:
- No additional Stars United families or fraud [Stars United was a corporation established by the previous enrollment director, to which some parents were instructed to make payments]
- Likely irregularities (not fraudulent) in any file with an eligibility determination done by the former Enrollment Director
- Confusion as a result of the EEC interim policies and procedures implemented in the Fall of 2018.
- Accurate eligibility determination after January of 2019, once Stars’ new controls and procedures were in place, and there was clarity regarding EEC’s new policies and procedures.
- Child care eligibility determination is extremely complicated and the current rules are hard to interpret and sometimes contradictory.
We believe that is precisely what this Audit found.
- Of the 86 authorizations reviewed, no additional fraud was identified.
- All 17 authorizations identified by the State Auditors to have inaccurate eligibility determination were all directly related to the previous Enrollment Director or the lack of clarity from EEC’s interim/revised policies. All of the files that were reviewed after Stars’ new procedures and controls were put in place and EEC’s new policies and procedures were clarified had no issues.
- Nine were processed by the previous Enrollment Director, only one of which eligibility could be an issue because proof of citizenship was not in the file.
- Of the other eight, the issue was documentation of Massachusetts residency, all of which had proof of residency at the most recent annual reassessment or a proof of residency that did not align with EEC’s recommended documentation. This was later clarified by email by EEC Director of Caseload and Financial Assistance “When it comes to [proof of address, or POA], there is a general reasonableness test that Subsidy Administrators must work through. Most often, POA only needs to be collected once, not at every reauthorization as is the case below, unless there has been something that changed. Examples of changing circumstances would include things like paystubs that now say married; parent checking off a different box on the household composition statement; a new child in the household (even if that child will not be in care); second parent listed on enrollment/emergency contact with same address; etc. If nothing has changed, than POA should not be requested again.” This email was shared with the State Auditors.
As noted in the “Audit Objectives, Scope, and Methodology” section of this report, EEC officials contacted the Office of the State Auditor (OSA) and stated that they would like to know whether Stars’ former enrollment director targeted any other families and whether Stars now ensured that all applications for subsidized childcare were properly processed. As a result, OSA initiated an audit of Stars, the scope of which excluded all cases that EEC and Stars had already identified as having problems related to how the former enrollment director processed them. Although our audit testing did not find any other specific instances of potential fraud, we did identify a number of issues related to how eligibility determinations were processed, which we believe Stars’ management needs to address.
Stars’ response mischaracterizes the information in our audit finding to an extent. Specifically, contrary to Stars’ response, not all of the 17 inaccurate eligibility determinations OSA identified were “directly related to the previous Enrollment Director or the lack of clarity from EEC’s interim/revised policies.” Rather, as noted above, of the 17 incorrect eligibility determinations we identified, only 4 are related to the former enrollment director’s actions. The former enrollment director also made 4 other errors related to the applications and fee agreements, which OSA reported as CCFA processing errors. Further, only 3 incorrect eligibility determinations happened after EEC issued its Interim Financial Assistance Policy Guide, effective October 1, 2018. They involved missing and/or incomplete documentation and therefore did not appear to be the result of any confusion about EEC’s new policies.
Stars’ response also states,
Of the other eight [errors processed by the previous enrollment director], the issue was documentation of Massachusetts residency, all of which had proof of residency at the most recent annual reassessment or a proof of residency that did not align with EEC’s recommended documentation.
Stars indicated that it had received an email from EEC’s director of caseload and financial assistance that stated, “Most often, POA only needs to be collected once, not at every reauthorization as is the case below, unless there has been something that changed.” However, this guidance conflicts with both of the EEC policies that were in effect during our audit period. Section 2.5 of EEC’s Financial Assistance Policy Guide for Families, Caregivers, and Service Providers 2013 states, “Documentation of residency must be updated annually or at each reassessment, whichever comes first.” EEC’s Interim Financial Assistance Policy Guide, effective October 1, 2018, states, “Documentation of residency must be updated at each reauthorization.” Because of the conflicted guidance from EEC, when performing our testing in this area, we determined whether applicants had provided proof of residency at either their annual authorizations or their last reauthorizations. However, Stars could not provide any acceptable form of residency documentation for the eight authorizations in question.
Finally, OSA acknowledges that we did not find any errors in the 27 authorizations in our sample that Stars approved between February 15, 2019 and November 30, 2019. Although this trend is encouraging and could indicate overall process improvements, Stars management is still responsible for ensuring that adequate internal controls over this process exist and are adhered to. Therefore, we urge Stars to implement our recommendations.
|Date published:||June 30, 2020|