Less than 0.5 percent of federal funds allocated for child care scholarships in Texas has been classified as “improper,” according to a report commissioned by Governor Greg Abbott. This investigation was initiated in response to allegations of a significant fraud scheme involving $110 million in child care funds in Minnesota.
While experts have deemed the allegations in Minnesota from December unfounded, they occurred against a backdrop of high rates of improper payments in the state’s child care scholarship program, exacerbated by other fraud scandals in different sectors.
Improper payments in Texas can refer to any inaccuracies in the amounts disbursed—whether too much or too little—or cases of outright fraud. The concerns raised in Minnesota triggered a nationwide response, prompting the federal government to suspend funding for child care initiatives in five states. This has led to fears among child care advocates that stricter regulations imposed to combat perceived fraud could further strain already underfunded providers.
“While it is essential to tackle fraud, it is equally important to avoid overcorrection that could create problems where none exist,” stated Radha Mohan, executive director of the Early Care and Education Consortium, a national association representing child care providers.
The Texas Workforce Commission and the Texas Health and Human Services Commission, two of the four agencies responsible for the state’s child care system, were tasked with investigating payment practices under Abbott’s directives. Their February report outlines the existing safeguards designed to prevent and address fraud, revealing that Texas’ improper payment rate stands at just 0.44%, amounting to approximately $4.3 million of a total budget exceeding $990 million.
“This report confirms that Texas has robust anti-fraud measures, resulting in remarkably low rates of improper payments compared to other states,” remarked Andrew Mahaleris, spokesperson for Abbott. “The governor will continue to enhance oversight, fraud reporting systems, and enforcement to ensure every taxpayer dollar is utilized effectively.”
The State of Child Care in Texas
The child care subsidy program in Texas faces significant challenges, with over 100,000 children awaiting scholarships to help cover preschool tuition costs as of November 2025. In many instances, preschool tuition in Texas surpasses the cost of attending a four-year university.
The subsidy program, which disbursed more than $980 million in 2022, aims to assist families earning up to 85% of the state’s median income, enabling parents to pursue employment or education. However, these scholarships often only cover a portion of the total child care expenses.
Additionally, numerous areas in Texas are classified as “child care deserts,” where there is a severe shortage of available preschool facilities. In light of the financial hurdles and scarcity of child care options, lawmakers allocated an additional $100 million to the subsidy program, drawing from leftover funds in the Temporary Assistance for Needy Families Fund. However, inflation quickly diminished the impact of this historic investment.
Federal funding is also directed to the Texas Workforce Commission, which distributes resources to 28 local workforce development boards. However, these funds are insufficient to meet the needs of families, according to Mohan.
“Of the millions of children eligible for the Child Care and Development Block Grant, less than a quarter actually receive assistance,” she noted. “The federal funding for this program is severely inadequate.”
Concerns about the efficient use of these funds have been heightened following the fraud allegations in Minnesota. In December 2025, a YouTuber claimed that child care centers operated by Somalians in Minnesota had defrauded the state of over $110 million. These claims remain unverified.
In response to the video, the U.S. Department of Health and Human Services suspended access to the Child Care and Development Fund, Temporary Assistance for Needy Families, and Social Services Block Grant funding in five states: California, Colorado, Illinois, Minnesota, and New York.
Child care advocates are navigating a precarious situation in light of the heightened scrutiny from both federal and state governments, including Texas. “This is a very sensitive issue,” remarked Kim Kofron, director of early childhood education at Children at Risk, an advocacy and research organization. “In Minnesota, the issues were largely due to inconsistencies and errors, rather than actual fraud.”
Findings of the Report
Following the allegations in Minnesota, Abbott instructed the state workforce and human services commissions to investigate potential issues with improper payments in Texas. He outlined several directives, including reviewing data collection methods, identifying high-risk providers, ensuring accurate data on scholarship recipients, maintaining uniform oversight processes, enhancing the fraud reporting portal, and escalating potential fraud cases to state or federal prosecutors.
During this investigation, state agencies identified 125 of approximately 7,500 child care providers as high-risk. Preventative measures already in place include regular assessments of providers, an attendance tracking system, a dedicated hotline and online portal for reporting fraud, and prompt responses to reported allegations.
Sherry Durham, senior director of Child Care for Workforce Solutions of Deep East Texas, expressed confidence in Texas’ regulatory framework, suggesting it could serve as a model for other states. “Child safety is paramount, and it is crucial to be responsible stewards of federal funds,” she emphasized.
These measures, many of which have evolved since 2011, have successfully reduced the rate of improper payments from 8.28% in 2007 to less than 0.5% in 2022, according to the latest report submitted to the Administration for Children and Families. The national average for improper payments currently stands at 3.96%. Texas’ last report was submitted in 2022, with the next report due later this year.
Future Directions
The child care fraud report outlined upcoming steps Texas agencies plan to implement in order to further tighten fraud prevention. However, experts express concerns that these initiatives might unnecessarily burden a sector predominantly comprised of small businesses.
In response to the investigation, Texas will initiate monthly reports on high-risk providers to monitor compliance and enhance training opportunities for local agencies investigating fraud. Additionally, state requirements for providers regarding child attendance tracking will be increased.
Kathlyn McHenry, director of state government relations for the Early Care and Education Consortium, cautioned that added requirements could complicate operations for providers without yielding tangible benefits. For instance, Texas is contemplating mandating that all providers utilize a single child care management system for attendance reporting, a previous requirement that was later rescinded.
Currently, providers can choose the management system that best suits their needs, which typically integrates attendance tracking with payment processing and parent updates. “Imposing a single mandated system on thousands of providers limits their ability to select the tools that work best for them and their families,” McHenry argued. “This could lead to an unfunded mandate when there is no clear evidence that it would prevent further instances of fraud.”
Looking ahead, there will be improved data sharing among state agencies regarding the distribution of child care scholarships. Local boards will be required to withhold funding from parents who owe money to the state. Enhancements to the online fraud reporting portal and hotlines are also planned.
The Texas Senate Health and Human Services Committee has invited public input on fraud prevention strategies within the child care and Medicaid systems. A meeting is scheduled for 9 a.m. on April 8 in the Capitol Extension Office, although details on online participation have not been provided.
Clarification, March 27, 2026, 11:23 a.m. Central: This article has been updated to reflect that the state reversed its decision to mandate a single system for all child care providers to submit specific data to the state. An updated decision will be announced later.
