Staff auditors of the Legislative Finance Committee said the Children, Youth and Families Department suspended three child care homes after auditors told the agency that registered sex offenders listed the homes as their primary addresses.
Department spokesman Henry Varela said the homes no longer can serve as child care locations. The agency confirmed the sex offenders lived there and revoked the state registration needed for the homes in Albuquerque and Algodones to provide child care services.
In a report released at a committee meeting in Santa Fe, auditors said "weak program integrity efforts at CYFD threaten effective allocation of resources and potentially endanger children."
The report said there's a high risk of fraud and waste in the child care assistance program because of inadequate review of child attendance and billing records. Auditors estimated that as much as $11 million annually in improper payments isn't recovered by the state.
The department's cabinet secretary, Yolanda Berumen-Deines, said in a written response to the audit that the agency is developing an automated system to cross-check the state government's registry of sex offenders and the department's list of child care provider addresses. That system will be operating by the end of the year.
Berumen-Deines said department staff currently review applications for new child care homes and check information against the sex offender registry.
There are nearly 3,700 registered child care homes in the state. Varela said the primary caregiver undergoes a background check, but other adults living in the home are subject only to a "protective services" screening by the agency to determine if there have been allegations of abuse or neglect against them.
There are about 1,000 licensed child care providers in New Mexico and they must meet certain department licensing standards, including that all adult workers are subject to background checks and agency screening.
The auditors found examples of sex offenders living in a house, trailer or apartment next door to a childcare provider. The report said New Mexico is among 19 states with no law restricting how close sex offenders can live to child care facilities or schools.
Berumen-Deines said current law requires county sheriffs to notify schools and licensed day care centers of registered sex offenders living within a one-mile radius. She also said sex offenders on probation are prohibited from living within a two-mile radius of a child care facility.
The state is spending about $95 million a year to provide child care assistance to about 20,000 children up to age 13 who live in low-income families.
The audit report said New Mexico needs to better coordinate early childhood programs, such as subsidized child care and federally administered Head Start, with the state's more academically rigorous pre-kindergarten programs.
"Despite significant investments, childcare assistance for low-income children fails to improve school readiness and early literacy," the report concluded.
Berumen-Deines took issue with the finding, saying there's national research that "quality child care can, indeed, positively impact a child's success in school." She said efforts are underway to improve the quality of child care programs in the state.
Child care advocates complained there's a waiting list for assistance, but the department didn't use $6.7 million allocated for child care last year. Auditors said the number of children served by child care has dropped in part because of falling welfare-to-work caseloads.
The audit report said there is "mission confusion for child care and whether the program should emphasize welfare support or school readiness."
Follow Barry Massey on Twitter at https://twitter.com/bmasseyAP