A childcare provider allegedly filed claims for non-existent children and bought the identities of parents as a way to defraud millions of dollars from the Federal Government.

Key points: NSW Police yesterday arrested 18 people who were allegedly involved in the scheme

NSW Police yesterday arrested 18 people who were allegedly involved in the scheme The Commonwealth Child Care Subsidy Scheme was designed to help reduce the financial burden on low and middle-income families

The Commonwealth Child Care Subsidy Scheme was designed to help reduce the financial burden on low and middle-income families Detectives are investigating other childcare providers in NSW

According to its website, Red Roses Family Day Care — which has locations in Sydney and Wollongong — promised to provide "high-quality, home-care options for children between the ages of birth to 12 years".

But the family-run company allegedly made fraudulent claims worth up to $5 million from Government childcare programs, including the Commonwealth's Child Care Subsidy Scheme (CCSS).

Red Roses Family Day Care allegedly filed claims for children who never existed and investigators NSW Police are now pursuing up to 150 parents who allegedly sold their children's identities to help the company qualify for the subsidies.

"There are over 150 parents laying claim in terms of rebate, what we've taken out yesterday are the professional facilitators behind his syndicate," NSW Police Acting Assistant Commissioner Stuart Smith said.

The ABC understand the business existed on paper, but no child ever went into care at any of the properties.

"The [child] identities were legitimate it's just there wasn't any physical evidence of anyone being looked after," Acting Assistant Commissioner Smith said.

Some members of the alleged crime syndicate have already been charged. ( Supplied: NSW Police )

Police said some of the men and women charged over the alleged scam were preparing to target the National Disability Insurance Scheme.

One of the "childcare centres" that supposedly looked after 50 children was operating out of a garage, police said.

Yesterday, NSW Police arrested 18 people over their alleged involvement in the scam — so far 17 have been charged.

"Strike force Mercury will continue in its investigations and we won't rule out further arrests," Acting Assistant Commissioner Smith said.

The company's director, Alee Farman, 49, was among 15 women and three men who were arrested yesterday during raids stretching from Fairfield to Wollongong in relation to the alleged syndicate.

Police said Mr Farman was originally from Iraq and became an Australian citizen in 2007.

Police said one woman arrested yesterday had $35,000 cash in her handbag, despite claiming Centrelink benefits.

More than 20 properties targeted

The means-tested scheme was designed to help reduce the financial burden placed on low and middle-income families paying for childcare.

Subsidies are generally paid to childcare providers, who are required to pass them on to parents as a fee reduction.

Families then make a co-contribution to their childcare fees, paying the provider the difference between the fee charged and the subsidy amount.

The CCSS previously existed under different names before last July.

Houses were raided across Sydney's south-west and Illawarra region yesterday. ( Supplied: NSW Police )

The company made around $4 million in rebates over eight months — the company director reportedly took home around $30,000 a fortnight.

Acting Assistant Commissioner Smith said some vulnerabilities had been identified in Government systems.

"There are vulnerabilities that we have found during the investigation," he said.

"We are working closely with the Department of Education both here and the Commonwealth to ensure those vulnerabilities are removed from the system."

Detectives and tactical officers targeted more than 22 properties when they turned up at homes across Greenacre, Fairfield, Bass Hill, Chester Hill and Georges Hall, and at a property near Wollongong.

A source close to the investigation told the ABC the group's activities were at the level of sophistication "that could only be likened to the highest level of organised crime".

The major investigation involved the Financial Crimes and Organised Crime Squad, along with the Federal Department of Education and Training, the Australian Intelligence Commission and the NSW Department of Education.

Inquiries into the alleged scam have been ongoing for almost a year, with childcare providers now under the microscope of detectives.