The new report cites shortcomings and problems with the how the DHS verifies if families are eligible for the program.

SAINT PAUL, Minn. — Integrity controls are too weak to effectively prevent, detect and investigate fraud in a critical child care program at the heart of a scandal that has cost taxpayers millions of dollars, Minnesota's legislative auditor said Wednesday.

The nonpartisan auditor's report cited shortcomings in how the state Department of Human Services and counties verify whether families are eligible for the Child Care Assistance Program and how the agency safeguards against child care providers billing for children they don't really serve. The report also detailed problems in the department's electronic billing and payment system, how it licenses providers and its processes for investigating fraud.

A separate, more limited review released last month found serious problems with the program but no evidence to support allegations that surfaced in media reports last year that money defrauded from the program might have reached Somali terrorists overseas. That report said investigators believe losses in the program exceeded the $5 million to $6 million that prosecutors have been able to prove.

"I know there's a lot of controversy around the allegations and even around our reports. We understand the sensitivity of these issues, not only for taxpayers but for people who need this program," Legislative Auditor James Nobles said at a hearing Tuesday. But he added that there's "actually a lot of agreement" between his office and the department. "They have recognized the seriousness of the fraud issue for quite a long time," he said.

Human Services Commissioner Tony Lourey, who took over the agency in January, told the hearing he generally agrees with the auditor's recommendations, and that he and Gov. Tim. Walz already have taken steps toward implementing the key recommendations via their budget and policy proposals to the Legislature.

The Child Care Assistance Program uses federal money to help low-income families afford child care while parents work or attend school so they can pull themselves out of poverty. It serves about 30,000 children in 13,000 families through about 3,000 providers, and has another 2,000 families on the waiting list.

The previous auditor's review noted that prosecutors have charged at least a dozen Minnesota individuals and child care centers with defrauding the program over the past five years. A Ramsey County case resulted in a five-year prison sentence for one defendant and an order for $3.5 million in restitution. In another case, a Minneapolis child care center was charged with defrauding the program out of nearly $16,000. The center billed for 837 children but surveillance video showed only 546 children attending there. The court ordered fines and restitution of over $38,000 and the owner was disqualified from working in child care for two years.

Republican Rep. Nick Zerwas said in an interview that "nobody should be surprised" by the new report because it mirrors earlier findings by the auditor on problems in other programs managed by the Department of Human Services, and expands on the report that came out last month.

"We are likely paying millions and millions of dollars to sham child care providers who aren't providing actual services and just taking the money," said Zerwas, who's the lead Republican on the House Government Operations Committee.

The report's recommendations included better billing practices and a real-time electronic attendance system to document that a child actually attends a particular child care center before payments go out, stronger eligibility checks and better systems for recovering improper payments.

"A significant amount of child care fraud is tied to child care businesses billing for services that they did not provide," the report said, describing a "costly and inefficient practice of pay-and-chase providers for overbilling."

Zerwas said lawmakers need to enact the auditor's recommendations. "They're vital, they're necessary," he said.

Sen. Michelle Benson, who chairs the Senate Health and Human Services Committee, said the report highlights basic failures at the department that also include a recent series of data breaches and long-running information technology difficulties. She said Lourey needs to show how he's going to address those problems before she could support giving his department any more responsibilities, such as Walz's proposed OneCare public option health insurance plan.