The national childcare subsidy program faced a major fraud and error impact, draining hundreds of millions with more than $484 million lost to incorrect payments, fraud, and non-compliance in the 2023-2024 financial year.

Auditors and sector analysts say compliance efforts are only partly effective, highlighting gaps in monitoring and enforcement and calling for stronger whistleblower protections, clearer provider expectations, and a national early childhood commission to standardize standards and transparency.

Industry voices argue that the sector’s design and market-based incentives heighten fraud risk, urging structural reforms and greater transparency to restore public trust.

The government has responded with more than $221 million across three budgets to safeguard the subsidy program, alongside state collaboration, unannounced visits, provider audits, data analytics, and stronger enforcement.

Notable cases include the December 2025 Victoria conviction and $1.7 million fine for Nuer Deng, who ran a family daycare and falsified claims, underscoring fraud risks across provider types.

Recent reforms tighten working with children checks, introduce market-entry requirements, and allow suspending or cancelling payments for serious breaches, though experts say core fraud risks tied to market incentives remain unaddressed.

The leading fraud method involves phantom children—subsidies claimed for non-existent or unserved children, often via operators who share a portion of the subsidy with parents.

Enforcement has been uneven across agencies, with the Australian Federal Police, state education departments, and Services Australia pursuing offenders, while audits and spot checks are challenged by the sector’s size (over 16,000 services and more than 1 million families).

In 2023-2024, the childcare subsidy program cost the government about $13.6 billion, placing it among the top federal programs by expenditure, with prosecutions for subsidy fraud nearing 100 people over five years in Victoria and New South Wales.