Childcare subsidy program leaks hundreds of millions of dollars in fraud and errors

Australia Broadcast Center

7 hours ago

Australia's $14 billion childcare subsidy program is haemorrhaging hundreds of millions of dollars each year due to fraud, overpayments and administrative errors, according to a landmark report from the auditor-general.
The report paints a disturbing picture of a system with serious oversight gaps and estimates more than $2.6 billion has been lost from incorrect payments in the five years to 2024.
It describes oversight and governance of the subsidy program as "partly effective," and monitoring and enforcement as not being properly managed.
The report notes that Services Australia was unable to track childcare-related tip-offs and relied on incomplete income data, while the Department of Education, despite holding broad enforcement powers, lacked clear policies on when or how to act.
"Which means it is not able to assess whether decisions to take enforcement action are fair, impartial, consistent, or proportional," the report says.
In 2023-24 alone, the auditor-general estimated $484 million in incorrect payments, including fraud and non-compliance. The education department identified but failed to investigate 970 potential overpayments, and it withdrew 42 per cent of fines issued, recovering less than 1 per cent of $6.4 million in outstanding debts.
With the subsidy program worth more than $13 billion a year, experts warn the real losses could be much higher than reported.
The childcare subsidy is one of the government's fastest growing payments programs, supporting 1.45 million children in approved care. By 2028, annual spending is set to surge by another $3.2 billion to almost $17 billion a year.
Early Childhood Education Minister Jess Walsh defended the government's record, saying Labor had delivered the highest provider claim accuracy rate on record at 96.4 per cent, up from 93 per cent before it came to government.
More than $300 million in savings had already been delivered through fraud investigations, strengthened audits, better data analytics and legislative changes.
"The government doesn't tolerate crooks ripping off the Child Care Subsidy. We will always look for ways to continue to improve the integrity of the system," Walsh said.
"Our integrity measures have delivered additional provider audits, more fraud investigations, improved targeting through better data analytics as well as education and support to the sector."
The minister confirmed the department had accepted all seven recommendations of the auditor-general's report, and urged the public to report wrongdoing via the department's anonymous tip-off portal.
Those recommendations include fixing oversight gaps, strengthening internal policies, publishing a joint compliance strategy, improving intelligence on risks and tip-offs, and upgrading critical systems.
And since the audit commenced, a joint governance board was established between Services Australia and the Department of Education to maintain strategic oversight of regulatory activities across both agencies. This will ensure both agencies have a joined up view of the integrity activity underway across the breadth of the subsidy, and provide senior oversight and decision making on key cross cutting issues.
But as costs rise and private operators chase profits, some experts say it is time to do something more radical and change the funding model.
It comes against a backdrop of a major ABC investigation into the $20 billion childcare industry which exposed a sector in crisis, plagued by systemic failures, secrecy and a rising number of serious incidents at some of the country's largest for-profit providers.
It triggered a parliamentary inquiry in NSW, spearheaded by Greens politician Abigail Boyd, and the release of tens of thousands of pages of regulatory documents, which include cases of inappropriate discipline, lack of supervision, unqualified educators and poor paperwork including expired Working With Children Checks and a failure to understand policies.
The documents also reveal alleged subsidy fraud including centres over-enrolling children by up to 40 per cent to claim extra funding — an illegal and dangerous practice.
Childcare advocate and consultant Lisa Bryant said the report's findings came as no surprise, given the sheer scale and complexity of the subsidy system.
"The childcare subsidy is mind-numbingly complex," she said. "It's beyond human understanding how the payments are calculated. Families don't understand how the money and hours are calculated and providers are also frustrated … it's no wonder money is going astray," she said.
Bryant said a simpler solution would be to fund childcare providers directly, much like schools, instead of processing subsidies for more than a million families.
"If the government paid providers directly, it would have a stronger policy lever," she said
"It could link funding to service quality and stop the funding if they don't meet the standards."
Bryant said the subsidies should be directed to the centres themselves, similar to how schools work, and if they don't provide quality services, the government has a lever to withdraw the funds.
Georgie Dent, the chief executive of The Parenthood, a parent advocacy organisation representing more than 80,000 parents, carers and supporters, said the system's failures are costing children and families dearly.
"When almost half a billion dollars is lost to fraud or incorrect payments in a single year, it's not just a technical glitch, it's a policy failure," she said.
"This is public money intended to support children's development, family workforce participation and economic productivity. We cannot afford to have it fall through the cracks."
Dent said the findings make the case for funding reform clear.
"We need a direct and transparent link between funding and the quality, accessibility and integrity of early childhood education services," she said.
"Strong governance, clear accountabilities and aligned incentives are not optional, they are the foundation of public trust and better outcomes for children."
Greens MP Abigail Boyd said the auditor-general's report revealed a deeply flawed system where billions of taxpayer dollars were being handed to early learning providers without the proper compliance and regulatory systems in place.
"It's no wonder that so many large for-profit companies view the Australian early childhood sector as such a lucrative investment," she said.
Boyd warned that injecting more money into the current model won't fix its structural failures: "We need a significant overhaul to ensure that everyone can have faith in this critical sector."
Chey Carter, former educator and now industry consultant at Divergent Education, says she isn't surprised there is so much leakage in the system. She says she spent time working with a Child Care System management provider and saw firsthand the mass level of confusion directors face when managing childcare subsidy payments.
"The support line was flooded with basic questions, how to fix overcharging, apply CCS correctly, or reconcile enrolments. These weren't one-off mistakes; they were routine," she said.
"To be eligible for CCS, providers must have fraud prevention policies and procedures in place but if we look at the policy from 'Childcare Desktop' a nationally used childcare policy provider — it states: 'staff will attend regular training to assist in the identification of fraud and corruption'. I can guarantee that the majority of the ECEC workforce have never attended such training."
It seems without deeper reform including linking funding to quality and tightening accountability and oversight, the childcare system will continue to bleed public money while failing the children it's meant to serve.