FRAUD EATS FUNDS FOR CHILD CARE D.A.'S DEPUTIES REPORT MILLIONS LOOTED IN AREA.

Byline: Troy Anderson Staff Writer

Rampant fraud is costing California taxpayers as much as $1.5 billion a year - half of the welfare money it pays to needy families for child care, officials say.

The scam is increasingly popular in Los Angeles County, where investigators have opened more than 800 cases involving child-care fraud.

``Right now, this is the fraud du jour,'' said James Baker, assistant head deputy district attorney in the Welfare Fraud Division. ``This is where the big money is now.''

The scam typically involves welfare-to-work recipients who fabricate employers or exaggerate work hours in order to qualify for taxpayer-financed child care. Then they split the money with friends and relatives who claim to be caring for the children, prosecutors said.

Under reforms of the 1990s, welfare recipients qualify for government- paid child care - usually $500 to $1,000 a month per child - while they are looking for work or, after finding jobs, are making the transition into the work force.

``For a person who has five children, somebody can be paid $5,000 a month to watch their children,'' Baker said.

Officials estimate Los Angeles County loses 40 percent to 50 percent of its $600 million-a-year child-care allocation to fraud.

``We've had to aggressively go after this,'' said Bryce Yokomizo, director of the county Department of Public Social Services.

``There was a time when welfare fraud was pretty straightforward. But we're now seeing such a rise in child-care fraud because people can fictitiously claim employment, which actually reduces the welfare grant, but then you have an opportunity to make so much more money on the child care.''

In what James L. Cosper, head deputy district attorney in the Welfare Fraud Division, called a ``tragic looting of the public treasury,'' investigators last week arrested 10 suspects accused of cheating public-welfare programs out of more than $1.2 million.

In one case, prosecutors say a Lancaster resident conspired with relatives and friends to invent phony employment and child-care records and fraudulently obtain $345,719. In another case, Palmdale residents are accused of fraud totaling $196,756 from several programs between 2001 and 2005.

In a case last year involving about $116,000, the Artesia relatives of an Ohio prison inmate set up a joint bank account in his name and submitted monthly vouchers to a local child-care agency, claiming the inmate was watching their children, Baker said.

Cosper said about 20 people have been prosecuted for fraud involving roughly $3 million in public funds since the District Attorney's Office began actively pursuing child-care cheaters a little more than a year ago, .

Of the $2 billion to $3 billion spent statewide on taxpayer-financed child care each year, up to 50 percent is going to fraudulent providers, estimated Cosper, citing a recent California Department of Education report.

``My colleagues up and down the state estimate the losses at 40-50 percent of the child-care funds,'' Cosper said.

In a survey of 1,744 child-care cases by the state Department of Education, workers were not able to contact about half of those listed as providers by phone. In one-third of the cases, they found evidence the child was being cared for, and in about 15 percent of the cases they found no evidence that such care had ever been provided, Baker said.

``There is virtually no follow-up to ensure the provider even exists,'' Cosper said. ``We've found some providers listed out of vacant lots or abandoned businesses.''

But Greg Hudson, a field-services administrator for the state Department of Education, said the study was not intended to be used in estimating the amount of fraud. He also doesn't think the fact that his workers were unable to reach about half of the child-care providers is proof of fraud.

``It could mean they were out on a field trip,'' Hudson said. ``It could mean the phone number was changed and they didn't tell the agency.''

But Hudson said investigation is merited in the roughly one case in five in which researchers found potential problems.

Holly Mitchell, chief executive officer of Los Angeles-based Crystal Stairs, the county's largest nonprofit child-development agency, claimed Cosper's fraud estimate is a gross exaggeration.

Grace Cainoy, executive director of the Child Care Alliance of Los Angeles, called fraud a serious problem, although she said estimates were much lower when lawmakers held hearings on the subject a couple of years ago.

``Fraud is a serious issue,'' Cainoy said. ``We are actively involved in doing a better job of preventing it and detecting it early on.''

The alliance represents 13 child-care agencies that distribute funding they receive from the county and state to 25,000 child-care providers for about 66,000 children.

Cosper said his office is only taking a nip out of the problem. Only one- third of the child-care cases fall under his jurisdiction while two-thirds of the cases fall under the jurisdiction of the state Department of Education, which had no one investigating the scams until recently, he said. Baker said the state just hired five investigators, all to be stationed in Northern California.

``It's shameful,'' Cosper said. ``There is so little regulation. The Legislature is either unaware or indifferent to the tremendous losses. It's a completely broken and dysfunctional system.''

Troy Anderson, [phone]

troy.anderson(at)dailynews.com