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Millions of dollars have been lost to childcare fraudsters claiming government subsidies for fictitious children or care that has not been delivered.
Almost 100 people have been successfully prosecuted for childcare subsidy fraud in the past five years – at least 24 in Victoria and 66 in NSW.
More than $484 million from the $13.6 billion childcare subsidy scheme was lost to incorrect payments, including fraud and non-compliance, in the 2023-2024 financial year.
Between 2023 and 2024, the childcare subsidy program cost the Australian government $13.6 billion, making it among the top 20 most expensive federal programs.
In Victoria, between January 2021 and February 2026, eight people were prosecuted by the Australian Federal Police, a further 10 by the Department of Education, and six by Services Australia. In NSW, police prosecuted 57 people, the NSW Department of Education five, and the AFP four.
Avinash Singh, a principal lawyer of Astor Legal said childcare subsidy fraud was “rampant”, with the most common scam being so-called phantom children – in which subsidies are paid for children that do not exist.
He said this was usually easy to detect but became more difficult when parents were involved in the scam. This can happen when a parent tells an operator they can use their children’s names to take the subsidy, even though they aren’t providing care, and the centre then gives the parents a cut.
“It needs either some sort of reporting or someone to actually be undercover at the childcare centre, seeing that those specific children don’t actually attend and don’t actually get any childcare,” Singh said. “That seems to be where a lot of this fraud is morphing into.”
Following horrific child sex allegations that rocked the childcare sector in July last year, major changes have been introduced to try to improve the industry.
In Victoria, a parliamentary review and rapid review are under way, there has been a shift in the working with children check, and a tightening of market entry requirements, as well as the ability to suspend or cancel child care subsidy payments for serious breaches. However, there is still concern that bad-faith operators are scamming subsidy payments.
Singh said the recent amendments “still don’t really get to the heart of the issue”. Due to the number of centres across the country, audits and spot checks are impossible, meaning the regulator must rely on reports or tip-offs.
“It becomes a bit of a money grab,” Singh said.
A 2024-25 auditor-general report into management and oversight of compliance activities within the childcare subsidy program found it was “partly effective”, but that there were gaps in monitoring and enforcement not being effectively managed.
Early Childhood Australia chief executive Samantha Page said the size and scale of the early childhood sector was often underestimated. Nationally, there are more than 16,000 services and over 1 million families.
Page said that while a major crackdown on family daycare schemes had increased scrutiny on approved providers and reduced fraud significantly, the vast majority were doing the right thing.
“I think strengthening whistleblower protection and investing in a culture of reporting could help to identify fraud or fraud risk,” Page said. “I also think clearer and stronger expectations on providers will help to eliminate bad actors.”
Services Australia and the Department of Education agreed to the report’s findings and recommendations and are implementing them.
In December 2025, Melbourne woman Nuer Deng was ordered to pay $1.7 million to the Victorian Department of Education and was sentenced to three years in prison for childcare subsidy fraud for operating a family daycare.
Among the charges, Deng claimed for childcare sessions that did not take place, charged inflated fees to a parent, and tried to bribe a Centrelink officer related to a family daycare she operated between 2013 and 2016.
The Parenthood chief executive Georgie Dent said subsidy fraud wasn’t simply a matter of individual wrongdoing, but rather a structural problem “driven by a market model that has incentivised some providers to put profit over children, and a lack of transparency and accountability”.
She called for a national early childhood commission, as recommended by the Productivity Commission, to set and enforce national standards, strengthen transparency and restore trust.
“The current market-based approach creates fertile ground for fraud and malpractice, while not-for-profit and community-based services, which consistently deliver high-quality outcomes, are increasingly squeezed out,” Dent said.
A departmental spokesperson said the Australian government took allegations of fraud and non-compliance seriously and used sophisticated data and intelligence techniques to monitor and prevent fraud.
The government has committed more than $221 million over the past three budgets to safeguard the childcare subsidy program and boost compliance.
The Commonwealth also invested about $22 million for joint compliance work and monitoring with the states and territories, including extra provider audits, fraud investigations, improved targeting through better data analytics and education and support to the sector.
Commonwealth officers are carrying out an extra 1600 unannounced visits each year, with providers facing cancellations or suspensions of subsidies, fines, debts or conditions imposed.
Between September 2024 and September 2025, there were 13 service approvals cancelled by the Victorian Department of Education.
Federal Minister for Early Childhood Education Jess Walsh said the government wouldn’t tolerate crooks ripping off the subsidy.
“Those doing the wrong thing should expect to be caught,” she said.
Walsh said that since Labor was elected in 2022, non-compliant use of the childcare subsidy had almost halved. “There are more authorised officers and more unannounced spot checks than ever before,” she said.
