WA Auditor: Missing data made it 'impossible' to track where child care federal funds went

As scrutiny over Washington’s child care funding system continues to intensify following investigations of fraud allegations, the Washington State Auditor’s Office has revealed sweeping oversight and accountability gaps at the Department of Children, Youth and Families (DCYF), including the inability to track provider-level payment data for four consecutive years.

While state officials continue to insist there is no proven fraud, the State Auditor’s findings reveal a deeper problem: for four years, Washington lacked the basic data needed to show where hundreds of millions of dollars went. State Auditor Pat McCarthy told KOMO News that DCYF’s lack of detailed provider data has repeatedly hampered audits and left billions in taxpayer-funded spending unverifiable. “They are probably the most risky of all of the departments in state government,” McCarthy told the outlet, citing DCYF’s size, scope, and the vulnerable populations it serves.

The auditor’s comments come as her office is finalizing an audit of the Child Care and Development Fund, a $770 million federal program administered by DCYF that paid subsidies to roughly 7,400 child care providers in the most recent fiscal year. The audit began before daycare funding allegations went viral nationwide, following fraud cases uncovered in Minnesota, and is expected to be completed in March.

According to McCarthy, DCYF has remained a high-risk agency for years. She pointed to findings from the FY24 audit that questioned more than $400 million in federal program costs because the state failed to maintain documentation required under federal law.

One audit finding states that DCYF’s failure to keep adequate supporting records made it “impossible” for auditors to trace payments of federal dollars to individual providers. As a result, auditors said they could not determine whether longstanding compliance problems had improved or worsened.

Because the agency could not allow auditors to trace grant expenditures down to the payment level, the auditor’s office formally questioned $415,579,473 in federal costs during the audit period. “We will look at individual providers when we do those audits,” McCarthy said, “but we have to get that information from the agency… and we haven’t been able to get that information for the last four years.”

Despite the auditor’s stark assessment, DCYF’s Oversight Board addressed the issue only briefly during a meeting held in private, even as agency leaders testified before the State Senate about fraud allegations engulfing DCYF in recent weeks. DCYF Chief Programming Officer Jenny Heddin told the board that the agency audited about 2,000 child care providers in 2025, only 23 percent of subsidy recipients, despite Democratic officials previously claiming that every Washington daycare was audited annually. Of those audits, 14 providers were referred to the Office of Fraud and Accountability, but none resulted in prosecutions or convictions.

DCYF officials stated that the agency does not consider overpayments to be fraud. Leaders said they have mechanisms to recover the roughly $2 million in overpayments identified last year, including wage garnishment and liens.

The revelations add fuel to an already heated debate in Washington. Independent journalists have been investigating alleged “ghost daycares” with no students, unexplained data changes on DCYF’s website, and a lack of transparency in subsidy payments. Meanwhile, state leaders, including the Attorney General, the Speaker of the House, the governor, Democratic leadership, and Seattle’s mayor, have dismissed fraud allegations and demonized journalists investigating the issue.

At the federal level, Rep. Michael Baumgartner (R-WA) has called for program-integrity reviews by HHS and USDA, citing Minnesota as a cautionary tale and urging independent verification that Washington’s safeguards are working.