Washington State Auditor Pat McCarthy told reporters the Department of Children, Youth and Families has lacked access to ‘provider-level data’ in the last four statewide audits, preventing full tracking of where money goes in the $770 million Child Care and Development Fund that made payments to 7,400 child care providers in the most recent fiscal year. The State Auditor’s Office is currently auditing the program, launched before day care funding allegations surfaced in viral Minneapolis videos last month, with completion expected in March. While auditors have not yet seen evidence of fraud, McCarthy said DCYF remains high risk, with the FY24 audit questioning more than $415 million in federal program costs. The audit found “by not complying with federal law requirements to maintain adequate supporting documentation for expenditures, the department made it impossible for our office to audit the federal dollars it used for payments to child care providers.”
McCarthy characterized DCYF as “probably the most risky of all of the departments in state government” during a Wednesday interview in her Olympia office. She said it’s one of the highest-risk agencies due to size, scope, and vulnerable population it serves. The audit’s Schedule of Federal Award Findings reads: “Because we could not test transactional-level detail, we also could not determine whether the issues we identified in prior audits had improved or worsened, including the Department’s lack of adequate internal controls and significant rate of noncompliance for payments to child care providers.”
The questioning of all $415,579,473 in federal program costs doesn’t necessarily indicate fraud or waste, but rather reflects audit standards that require questioning expenditures when adequate documentation isn’t provided to verify they meet federal requirements. That technical distinction matters because questioned costs can be resolved through providing better documentation rather than requiring repayment, though the inability to provide documentation for four consecutive years suggests systematic problems rather than minor oversights.
McCarthy explained the data access problem: “We will look at individual providers when we do those audits, but we have to get that information from the agency to be able to do that body of work. And we haven’t been able to get that information for the last four years.” That statement reveals auditors couldn’t examine whether specific providers received appropriate payments, whether providers who shouldn’t qualify for funds received them anyway, or whether fraud occurred because DCYF’s systems didn’t track payments at level allowing such analysis.
When asked whether the state knows if child care dollars are flowing properly, McCarthy deferred to DCYF, suggesting the auditor’s office can’t verify appropriate use of funds without provider-level data. That creates accountability gap where the agency responsible for distributing funds claims compliance while the independent auditor tasked with verifying that compliance can’t access data needed to confirm or refute the claim.
DCYF responded that “while we have been consistently in compliance with federal requirements for this program, DCYF took feedback from prior audits to change how we track payments to comply with the state auditor’s recommendations. We’ve been working closely with SAO for the past year, and we changed our process in FY25, which is the audit they are working on right now.” That response emphasizes federal compliance while acknowledging they changed processes to meet state auditor recommendations, creating question about how they can claim consistent compliance if they needed to change processes to satisfy audit requirements.
The distinction DCYF makes between federal compliance and state audit requirements reveals potential gap where agency meets minimum federal standards but doesn’t provide transparency and documentation state auditors believe necessary for proper oversight. Federal requirements might allow aggregated reporting that meets compliance thresholds without detailed provider-level tracking that would enable detection of fraud or improper payments to individual providers.
McCarthy said the most recent audit shows change, crediting new leadership including DCYF Secretary Tana Senn, DSHS Secretary, and Governor Bob Ferguson’s “efforts on accountability for his state agencies.” Whether those leadership changes produce lasting improvements or represent temporary focus that fades once immediate scrutiny passes affects whether Washington’s child care funding oversight genuinely improves.
The timing of the audit, launched before Minneapolis allegations went viral, means it wasn’t politically motivated response to national concerns but rather routine examination of high-risk program. That timing strengthens audit credibility while also meaning findings weren’t specifically designed to address fraud concerns that emerged from Minnesota situation. Whether the March completion produces findings relevant to fraud detection or focuses on documentation and compliance processes affects how useful the audit is for addressing public concerns.
McCarthy’s emphasis that “what happened in Minnesota happened in Minnesota. So don’t conflate what happened there with what’s happening in Washington state” attempts to prevent panic while also stopping short of definitively stating Washington doesn’t have similar problems. She can’t make that assurance because without provider-level data from the past four years, auditors couldn’t verify whether fraud occurred. The attempt to “calm the public down” and “calm Washingtonians down” might be premature if the ongoing audit discovers problems that four years of inadequate documentation prevented from being detected earlier.
The Minneapolis allegations, involving day care providers allegedly fraudulently billing for services not provided, went viral through videos and social media posts highlighting specific examples of apparent fraud. Those allegations focused attention on child care subsidy programs nationwide and raised questions about whether similar fraud occurs in other states. The federal Child Care and Development Fund provides money to states that distribute it to eligible providers serving low-income families, creating opportunities for fraud if oversight is insufficient.
The public scrutiny McCarthy calls “a good thing” reflects increased attention to government spending and accountability. She noted her office provides extensive audit information online with infographics and user-friendly formats because “audits can be technical and wonky.” That accessibility matters because parents and families need to “ensure that they are getting the services that they are paying for or they’re getting subsidized for,” though individual families typically can’t verify whether other providers in the system are fraudulent.
The $770 million program size makes even small percentage rates of fraud potentially represent millions in losses. If 1% of payments went to fraudulent claims, that’s $7.7 million. If 5%, that’s $38.5 million. Without provider-level data allowing auditors to examine individual transactions and verify services were actually provided to eligible children, detection of such fraud is impossible. The four-year gap in adequate oversight creates vulnerability where fraudulent providers could operate with minimal detection risk.
The 7,400 child care providers receiving payments in the most recent fiscal year represent diverse operators from large chain facilities to small home-based daycares. Most are presumably legitimate providers serving families according to program rules, but the lack of detailed tracking prevents identification of bad actors who might submit fraudulent claims. Whether DCYF has other fraud detection mechanisms beyond audit oversight, like data analytics comparing provider billing patterns or site visits verifying claimed enrollment, affects actual fraud risk versus documented oversight.
The vulnerable population DCYF serves, children in low-income families needing subsidized care so parents can work, makes oversight particularly important. Fraud in child care subsidies doesn’t just waste taxpayer money, it potentially means children aren’t receiving care that parents believe they’re getting, or that legitimate providers are crowded out by fraudulent operations, or that funding gets diverted from families who need it. The stakes extend beyond fiscal accountability to child welfare and family economic stability.
The federal Health and Human Services requirements DCYF allegedly didn’t comply with, preventing tracing of grant expenditures to payment level, exist specifically to enable oversight and fraud detection. If states can’t demonstrate that payments went to specific providers for specific children receiving specific services, auditors can’t verify appropriate use of federal funds. That Washington went four years without meeting those requirements raises questions about federal oversight and why HHS didn’t intervene earlier to require compliance.
The claim that DCYF changed processes in FY25 to comply with auditor recommendations suggests the March audit completion should show improvement. If provider-level data is now available and auditors can trace payments appropriately, that resolves the documentation problem even if it doesn’t retroactively address the four years of inadequate tracking. Whether the changes are superficial compliance improvements or fundamental system upgrades that enable ongoing fraud detection affects long-term program integrity.
McCarthy’s characterization of leadership changes bringing “a new day” reflects auditor’s role balancing criticism of past problems with recognition of improvement efforts. Auditors who only criticize risk alienating agencies and preventing cooperation needed for effective oversight. But auditors who accept promises of improvement without verifying actual changes enable continued problems. Whether McCarthy’s optimism about new leadership is justified depends on March audit findings showing concrete improvements beyond promises.
For Washington taxpayers and families using subsidized child care, the audit findings create uncertainty about whether their tax dollars and subsidy benefits are being properly managed. Parents might wonder whether providers they use are legitimate, whether fraud is occurring that could disrupt their care arrangements if discovered, or whether inadequate oversight means services aren’t as available or high-quality as they should be. The lack of definitive answers pending March audit completion leaves questions unresolved.
The broader context includes nationwide scrutiny of pandemic-era expansions of child care funding, where massive influx of federal dollars created opportunities for fraud while overwhelming states’ administrative capacity to verify appropriate use. Washington’s CCDF problems predating the pandemic by at least four years suggest this isn’t just COVID-related fraud but longstanding systematic weakness in oversight that pandemic funding made more costly and visible.
Whether Washington’s situation improves, stays the same, or proves worse than currently known depends on March audit findings and whether DCYF’s claimed process improvements actually enable the provider-level tracking auditors need. For now, State Auditor McCarthy acknowledges serious oversight gaps existed for four years, questions $415 million in federal program costs from FY24, but emphasizes no fraud evidence has been found while also noting that without adequate data, fraud couldn’t be detected even if it occurred. That uncomfortable reality, that absence of evidence isn’t evidence of absence when oversight tools are inadequate, will hopefully be resolved through improved tracking and March audit results showing whether Washington’s child care funding faces problems similar to Minnesota’s or whether better systems prevented similar fraud from occurring or continuing undetected.
