AUSTIN (AP) – Less than half a percent of federal money spent on child care scholarships in Texas was considered “improper,” a new report ordered by Gov. Greg Abbott found.
Abbott’s directive followed allegations of a $110 million child care fraud scheme in Minnesota. Experts say the Minnesota allegations in December were unfounded. But they did follow years in which the state reported high rates of improper payments in its child care scholarship program, and those allegations came at a time when the state was beleaguered by fraud scandals in other programs.
Improper payments in Texas include any payment made of an incorrect amount — over or under — or they could be fraudulent.
The allegations in Minnesota caused a ripple across the country. The federal government froze funding for child care in five states, and states themselves turned inward to ensure their fraud prevention systems were up-to-date. Child care advocates worry fears of wide-spread fraud will cause regulators to tighten requirements for child care providers, which are already underfunded and struggling, making it impossible for them to operate effectively. Or worse, that regulators cut funding as a result of fears over fraudulent activity.
“While you do want to address the issue (of fraud), you also don’t want to over-correct and create issues where they currently do not exist,” said Radha Mohan, the executive director of the Early Care and Education Consortium, a national nonprofit association of child care providers.
The Texas Workforce Commission and Texas Health and Human Services Commission are two of four agencies that oversee Texas’ child care system — and were tagged with investigating payments by the governor. The report released in February by the two Texas agencies details the state’s ongoing safeguards to prevent, stop and prosecute fraud and what is being done to clamp down on it further. It also highlighted part of the last improper payment report submitted to federal regulators, that says Texas’ improper payment rate is .44% — equivalent to about $4.3 million of the more than $990 million budget.
“This report confirms that Texas maintains strong anti-fraud measures that have kept improper payments extraordinarily low compared to other states,” said Andrew Mahaleris, Abbott’s press secretary. “Governor Abbott will continue working to further enhance oversight, fraud reporting tools, and enforcement to ensure every taxpayer dollar serves its intended purpose.”
What child care looks like in Texas
The Texas child care subsidy program is notoriously overwhelmed.
More than 100,000 children were waiting for scholarships to cover the cost of preschool tuition in November of 2025. Tuition to attend preschools in Texas is, in many cases, more expensive than attending a four-year university.
The subsidy program, which spent more than $980 million in 2022, provides scholarships to families with incomes at 85% of the state’s median income and lower. It allows parents to go to work or school. The scholarships often cover only part of child care tuition.
And many communities in the state are “ child care deserts,” meaning there are few to no places actually available for kids to attend preschool.
The issue of cost and the lack of child care programs across the state prompted lawmakers to assign another $100 million to the child care subsidy program using leftover dollars from the Temporary Assistance for Needy Families Fund. It was an historic investment that was eaten up by rampant inflation before the end of 2025.
Federal dollars are also given to the Texas Workforce Commission, which then allocates the money to 28 local workforce development boards across the state. And they are, by no means, enough to meet the needs of families, Mohan said.
“Of the millions of children that qualify for Child Care and Development Block Grant, less than a quarter actually receive assistance through the program,” Mohan said. “The program is woefully underfunded at the federal level.”
Nobody wants to see that money be wasted on fraud, Mohan said. That’s why there was such a large reaction to allegations of fraud in Minnesota.
In December 2025, YouTuber Nick Shirley posted a video claiming child care centers run by Somalians in Minnesota had defrauded the state government of more than $110 million through this program. Shirley’s claims in Minnesota have not been verified.
In response to the video, however, the U.S. Department of Health and Human Services froze access in January to the Child Care and Development Fund, Temporary Assistance for Needy Families and Social Services Block Grant — which can be used to subsidize child care — in five states: California, Colorado, Illinois, Minnesota and New York.
Advocates have been walking a fine line since these allegations because of the heightened response by the federal government and state governments, including Texas.
“This is very delicate,” said Kim Kofron, the director of early childhood education with ChildrenatRisk, a child care advocacy and research group. “In Minnesota, there really wasn’t fraud. There were inconsistencies and errors — but that’s not fraud.”
What the report found
In response to the allegations in Minnesota, Abbott issued six directives to the state workforce and human services commissions to identify if Texas had a problem with improper payments, specifically with fraud.
He wanted the two agencies to: review current data collection efforts to make sure they’re sufficient; identify high-risk providers and bring them into compliance; ensure all providers data on children receiving scholarships is accurate; make sure the state’s oversight process is upheld uniformly across the state; improve the online fraud reporting portal; and submit fraud investigations to state or federal prosecutors if necessary.
Of the approximately 7,500 child care providers who accept child care scholarships, 125 were flagged as high risk by the state agencies during this investigation.
Other fraud prevention measures include: regular, in-person assessments of child care providers; an attendance tracking system; a hotline and online portal for allegations of fraud, and a quick response to those allegations by state boards.
Sherry Durham, the senior director of Child Care for Workforce Solutions of Deep East Texas, said the regulations Texas has in place make sense and are easy enough to maintain. The state’s safeguards could be a model for other states, she said.
“First and foremost is child safety,” Durham said. “But then, also, if there’s money coming from the federal government, you want to be good stewards of it.”
These measures, many of which have been built upon since 2011, cut improper payments from 8.28% in 2007 to less than .5% in 2022, according to the latest report, which cited the federal improper payment report submitted to the Administration for Children and Families, the largest federal human services administration, every three years.
This national average for improper payments is 3.96%.
The last report submitted by Texas was in 2022. The next report is due later this year.
What’s next
The child care fraud report detailed the next steps Texas agencies are taking to further crack down on fraud. But experts worry these measures may add unnecessary burdens on an industry that is largely made up of small businesses.
As a result of the investigation, Texas began creating a monthly report that details high-risk providers to keep an eye on. The state also created more training opportunities for local agencies investigating fraud and added to state requirements for providers tracking child attendance in child care.
Kathlyn McHenry, the director of state government relations for the Early Care and Education Consortium, worries that additional requirements will make life harder for providers with no real benefit. For example, Texas is now requiring all providers to use one child care management system in an effort to improve attendance reporting.
Before this requirement, providers could use a child care management system that worked best for them, for their families, for their structure, McHenry said. Those systems usually integrated attendance with payment programs and updates for parents.
“Mandating one specific child care management system for thousands of providers removes their ability to choose the system that works best for them and their families,” McHenry said. “And it potentially creates an unfunded mandate on providers … when there really is no indication that this will prevent any additional fraud from occurring.”
In the future, there will be enhanced data sharing between state agencies regarding programs receiving child care scholarships, the state report said. Local boards will be required to withhold funding from parents who owe the state money. There will be improvements to the state’s online fraud reporting portal and the hotlines.
The Texas Senate Health and Human Services Committee is asking for public recommendations and ideas on fraud prevention in the child care and Medicaid system. The meeting is at 9 a.m., April 8, in the Capitol Extension Office. The notice does not indicate whether online participation will be permitted.
