STOP Child Care Fraud Act

This Act may be cited as the “Strengthening Transparency and Oversight to Prevent Child Care Fraud Act” or the “STOP Child Care Fraud Act”.

(a) State plan.— Section 658E of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858c) is amended—

(1) in subsection (c)(2)—

(A) subparagraph (K)(i)—

(i) in subclause (III), by striking “and” at the end;

(ii) in subclause (IV), by striking the period and inserting “, and”; and

(iii) by at the end the following:

“(V) require licensing inspectors conducting an onsite inspection under subclause (II) to conduct a brief review of compliance with enrollment requirements by the child care provider involved;”;

(B) in subparagraph (N)(i), by adding at the end the following:

“(III) Changes in income.— The plan shall demonstrate that the State requires a parent referred to in subclause (I), who experiences a change in the ongoing status of the parent as working or attending a job training or educational program or whose family experiences a change in family income, shall report the change involved to the State not later than 90 days after the change.”;

(C) in subparagraph (S), by striking clause (ii) and inserting the following:

“(ii) an assurance that the State will, notwithstanding clause (i), provide payment under this subchapter to a child care provider based on an eligible child's verified attendance, but support the fixed costs of providing child care services by delinking provider payments from the child’s occasional absences by providing full payment if the child is absent for 6 or fewer days in a month.”; and

(D) by adding at the end the following:

“(W) Timing of billing and payment.— The plan shall describe how the lead agency for the State will establish payment practices that ensure timeliness of billing by and payment of child care providers under this subchapter by—

(i) requiring that such a provider submit a complete invoice within 9 months after the date on which the provider delivers the services involved; and

(ii) paying within not more than 21 calendar days after the receipt of a complete invoice for services.

(X) Verification of eligibility.—

(i) Verification.— The plan shall describe how, if a parent seeks child care assistance for a child under this subchapter, the State will verify (without self-certification) the eligibility of the child, including verifying the income and assets of the child's family, the size of the family involved, the county or other political subdivision in which the child resides (subject to paragraph (3)(B)(i)), that the individual for whom the parent seeks child care assistance is the child of the parent, and whether the parent and the child either are citizens or are not ineligible for Federal public benefits under title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1601 et seq.).

(ii) No presumptive eligibility.— The plan shall include an assurance that, subject to paragraph (6), the State will not consider a child to be presumptively eligible, or allow the child to receive a child care subsidy prior to a full documentation and eligibility determination, within the meaning of section 98.21(e) of title 45, Code of Federal Regulations (as in effect on the day before the date of enactment of the STOP Child Care Fraud Act), subject to subparagraph (I)(i)(I) and paragraph (3)(B)(i).

(Y) Verification of attendance with electronic authentication tools.—

(i) Definition.— The term electronic authentication tool means an electronic tool that authenticates the identity of a parent or other person dropping off or picking up a child from a child care provider, such as a finger imaging device or an interactive voice response device.

(ii) Use.— The plan shall describe how the State will require a center-based eligible child care provider receiving assistance, or a center-based eligible child care provider that receives a child care certificate, under this subchapter to use electronic authentication tools, including to verify attendance.

(Z) Integration and analysis of data from data systems.— The plan shall describe how the State will—

(i) integrate data from different data systems, including records on child care providers (including on licensing of child care providers, subsidies for child care providers, and eligibility for those subsidies), and employment records;

(ii) use data analytics to clean, analyze, and interpret the data described in clause (i), particularly to identify anomalous patterns indicative of potential fraud by child care providers; and

(iii) analyze the robustness of the data integration described in clause (i).”;

(2) by adding at the end of subsection (c) the following:

“(6) Exceptions to prohibition on presumptive eligibility.— The Secretary may determine or specify that States may determine exceptions, for emergency situations, to the requirements in paragraph (2)(X)(ii) relating to presumptive eligibility and full documentation and eligibility determinations.”; and

(3) by adding at the end the following:

“(e) Posting State plans and related documents.— Each State that receives a payment for the program carried out under this subchapter shall post, on a publicly available website, each State plan or State plan amendment proposed by the State or approved under this section for the State, and each corrective action plan issued for the State due to State noncompliance with this subchapter (including any failure described in section 658I(b)(2)(A)).

(f) Regulations on attendance verification.— Not later than 1 year after the date of enactment of the STOP Child Care Fraud Act, the Secretary shall issue regulations that specify the manner in which a State shall verify attendance for purposes of subsection (c)(2)(S)(ii), including the manner in which the State will require the use of electronic authentication tools to verify that attendance under subsection (c)(2)(Y). Such regulations shall take effect 1 year after the date of issuance.”.

Section 658G of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858e) is amended—

(1) in subsection (a), by inserting at the end the following:

“(4) Portion for quality and compliance activities.— Of the funds reserved under paragraph (2)(A), the State shall set aside 3 percent of the funds described in paragraph (1) to carry out activities under subsection (b)(10).”;

(2) in subsection (b)—

(A) by redesignating paragraph (10) as paragraph (11); and

(B) by inserting after paragraph (9) the following:

“(10) Carrying out activities designed to improve the quality of child care services, in accordance with State priorities, and activities to meet State requirements for inspection, monitoring, and licensing of child care providers receiving funding under this subchapter.”; and

(3) in subsection (d)(2), by inserting “and in particular the activities carried out with funds set aside under subsection (a)(4)” before the semicolon.

Section 658I(b) of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858g(b)) is amended—

(1) by striking paragraph (1) and inserting the following:

“(1) Review of compliance.—

(A) In general.— Not less often than once every 3 years, the Secretary shall review and monitor State compliance with this subchapter, including with the plan approved under section 658E(c) for the State.

(B) Heightened monitoring.— States designated as high-risk under subparagraph (C) shall be subject to monitoring, of that State compliance, that is more frequent than the monitoring required under subparagraph (A), with the frequency determined by the Secretary.

(C) High-risk.— The Secretary shall designate as high-risk any State with—

(i) unresolved or repeated audit findings under section 658K(b);

(ii) an improper payment rate that exceeds 6 percent, as reflected in 2 consecutive reports described in section 658K(a)(3)(A)(i); or

(iii) an improper payment rate that exceeds 9 percent, as reflected in such a report.”;

(2) in paragraph (2)—

(A) in subparagraph (B)—

(i) by striking “Secretary may” and inserting “Secretary shall”; and

(ii) by striking “subchapter, and” and inserting “subchapter, withholding of funds or a percentage reduction of funds from the State allotment for the following fiscal year, or”; and

(B) in subparagraph (C), by striking “additional sanction being imposed under subparagraph (B)” and inserting “additional sanction or penalty being imposed under subparagraph (B) or (C)”;

(3) by redesignating paragraph (3) as paragraph (5); and

(4) by inserting after paragraph (2) the following:

“(3) Penalties.— If the Secretary determines that an amount shall be reimbursed, deducted, recouped, withheld, or reduced under subparagraph (A) or (B) of paragraph (2) for a State, the Secretary shall increase that amount by adding a penalty equal to 5 percent of the amount against the State.

(4) Corrective action plans.—

(A) Submission.— If the Secretary finds under paragraph (2) that a State has made an improper expenditure of funds, and the Secretary does not disqualify the State under that paragraph from receiving financial assistance, then the Secretary shall require the State to submit to the Secretary for approval, not later than the date that is 60 days after that finding, a corrective action plan with an implementation date.

(B) Failure to submit.—

(i) Extension of submission date.— A State may request from the Secretary an extension of the submission date determined by the Secretary under paragraph (1).

(ii) Withholding.— If the State fails to submit the plan by that submission date (including any extension granted under clause (i)), the Secretary shall withhold funds for the program carried out under this subchapter for that State until the State submits the plan.

(C) Failure to implement.—

(i) In general.— Subject to clause (ii), if the Secretary determines that the State fails to implement the corrective actions in the plan by that implementation date, the Secretary shall withhold funds for the program carried out under this subchapter for that State until the Secretary determines that the State has implemented those corrective actions.

(ii) Good faith exception.— If the Secretary determines that the State is acting in good faith to implement the corrective actions as soon as is practicable, the Secretary may elect not to withhold funds, or to postpone that withholding, under clause (i).”.

(a) Error report requirements.—

(1) In general.— Section 658K(a) of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858i(a)) is amended by adding at the end the following:

“(3) Error reports.—

(A) Rulemaking.— The Secretary shall issue regulations to, at a minimum—

(i) ensure that, in calculating, preparing, and submitting reports of errors, under subpart K of part 98 of title 45, Code of Federal Regulations (or a successor regulation), in the administration of grant funds appropriated or made available under this subchapter, States include suspected and verified cases of fraud as improper payments;

(ii) require any State with an improper payment rate that exceeds 6 percent, as reflected in a report described in clause (i), to submit to the Secretary for approval a comprehensive corrective action plan, as well as submitting to the Secretary subsequent reports describing progress in implementing the plan; and

(iii) require each State to conduct case reviews and submit reports described in clause (i) to the Department of Health and Human Services according to a staggered 2-year cycle established by the Secretary such that each State will be selected once, and only once, in every 2 years, notwithstanding subchapter IV of chapter 33 of title 31, United States Code.

(B) Availability.— The Secretary, on receiving a report described in subparagraph (A), shall post the report on a publicly available website. The Secretary shall also post on that website any corrective action plan that is described in this subchapter and approved for a State that is described in section 658E(e).

(C) GAO review.— The Comptroller General of the United States shall—

(i) review fraud and improper payments that—

(I) involve funds described in subparagraph (A)(i);

(II) are committed at the State, local or regional level, as appropriate; and

(III) are covered in sources including reports described in subparagraph (A)(i) and corrective action plans submitted to the Secretary by States; and

(ii) offer recommendations to the Inspector General of the Department of Health and Human Services and to the Secretary for additional oversight.

(D) State.— In this paragraph, the term State means any of the 50 States, the District of Columbia, and the Commonwealth of Puerto Rico.”.

(2) Interim final rule.— Not later than 1 year after the date of enactment of this Act, the Secretary shall promulgate an interim final rule amending sections 98.100 through 98.102 of title 45, Code of Federal Regulations, as in effect on January 12, 2026, to promulgate the regulations required under section 658K(a)(3)(A) of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858i(a)(3)(A)), as added by paragraph (1).

(b) Audits.— Section 658K(b) of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858i(b)) is amended—

(1) by striking paragraph (3) and inserting the following:

“(3) Submission of audit report and corrective action plans.—

(A) Appeal of audit findings.—

(i) Filing.— Not later than 60 days after the State receives the independent auditor's report under paragraph (2), the State may file with the Secretary an appeal of the audit findings contained in the report.

(ii) Decision.— Not later than 120 days after the filing of the appeal, the Secretary shall issue a decision on the appeal, specifying whether any audit findings shall be removed from the report and, if so, which findings. The State shall use the updated auditor's report, after making the removals specified by the Secretary, for purposes of subparagraphs (B) and (C).

(B) Submission of report and plan.— Not later than 30 calendar days after the State receives the independent auditor’s report under paragraph (2) or, in the event of an appeal under subparagraph (A), not later than 90 calendar days after the Secretary's decision is issued on the appeal, the State shall submit—

(i) to the legislature of the State and, if applicable, to the Indian tribe or tribal organization involved—

(I) a copy of the auditor's report; and

(II) for approval, a corrective action plan to address each negative audit finding included in the auditor’s report for the current reporting; and

(ii) to the Secretary, a copy of the auditor's report and (for approval by the Secretary) the corrective action plan.

(C) Contents of corrective action plan.— The corrective action plan shall include the name of the contact person responsible for the corrective action, the corrective action to be taken, and the anticipated completion date, which shall be not later than 1 calendar year after the State received the independent auditor’s report under paragraph (2). If the State does not agree with 1 or more audit findings in the report or believes corrective action is not required, the corrective action plan shall include a detailed explanation of the reasons.”; and

(2) by adding at the end the following:

“(5) Inspector general report.— Not less often than every 2 years, the Inspector General of the Department of Health and Human Services shall prepare and submit to the Secretary a report on States that fail audits under this subsection, and shall include recommendations for States that need additional monitoring and technical assistance.”.

(c) Database on providers.— Section 658K of the Child Care and Development Block Grant Act of 1998 (42 U.S.C. 9858i) is amended by adding at the end the following:

“(c) Database on providers under Administration for Children and Families.—

(1) State reports.— If a State, or providers in a State, receive Federal funding through a program administered by the Administration for Children and Families, the State shall provide annual reports to the Assistant Secretary of the Administration for Children and Families. Each such report shall name the individuals who served as providers under such a program but are disqualified by the State from receiving Federal funding through the program because the providers were found by a court to have committed fraud in carrying out the program.

(2) Database.— The Secretary, acting through the Assistant Secretary of the Administration for Children and Families, shall maintain a database of the providers named in such a report. The Secretary shall list a provider in the database for the period of the provider's disqualification by the State.

(3) Prohibition on funding listed providers.— The Secretary shall, when approving an application for Federal funding under such a program—

(A) from a State, prohibit the State from using any of the Federal funding for a provider listed in the database; and

(B) from a provider, prohibit the provider from receiving the Federal funding if listed in the database.”.

Section 658P(4) of the Child Care and Development Block Grant Act of 1990 (42 U.S.C. 9858n(4)) is amended—

(1) by striking subparagraph (B) and inserting the following:

“(B) whose family assets do not exceed $500,000 (as determined by the State involved), excluding the net value of a family farm described in subparagraph (B), or a commercial fishing business and related expenses described in subparagraph (D), of section 480(f)(2) of the Higher Education Act of 1965 (20 U.S.C. 1087vv(f)(2)); and”; and

(2) by striking subparagraph (C) and inserting the following:

“(C) who—

(i) resides in a family that is headed by a person who is the child’s parent, who is working or attending a job training or educational program, and that has a family income that does not exceed 85 percent of the State median income for a family with the same number of children headed by a person, based on the most recent data that is published by the Bureau of the Census;

(ii) resides in a family that is headed by two persons who are the child’s parents, and who work a combined total of at least 40 hours per week, with a family income that does not exceed 85 percent of the State median income for a family with the same number of children headed by two persons, based on the most recent data that is published by the Bureau of the Census; or

(iii) is receiving, or needs to receive, protective services and resides with a parent or parents not described in clause (i) or (ii).”.