King County says its contractor failed to pay $1.1 million to child care providers in subsidy program

Fawsia Diriye, a child care provider in Kent, has been waiting on $1,400 from King County to cover some of her clients’ monthly bills. The payments are part of the Best Starts for Kids levy that King County voters approved in 2021.

Diriye is among 330 childcare providers the county said were missing payments for the children they serve.

“Nobody’s getting back to me,” Diriye said. “I don’t know what they’re doing. I’m not getting calls or nothing.”

The child care subsidy program is a cornerstone of Best Starts for Kids, and makes up nearly one quarter of the estimated $884 million, six-year property tax. The sliding-scale subsidy is intended for families that do not otherwise qualify for child care assistance, often because their income is slightly higher than the cutoff for other programs.

The payments were supposed to come from a nonprofit that the county hired to distribute the money. The county now says that nonprofit, Scholar Fund, failed to pay child care providers at least $1.1 million.

The county terminated its $72.8 million contract with Scholar Fund last November. “We are considering additional steps to correct any payments, including potential litigation,” said Katie Rogers, spokesperson for the county Department of Community and Human Services.

Of the $1.1 million missing payments, the county has so far identified nearly $139,000 the nonprofit said it paid, but providers didn’t receive, said Jessica Tollenaar Cafferty, who co-leads Best Starts for Kids. The rest of the missing payments are still under investigation, she said.

David Coven, Scholar Fund executive director, refuted the county’s missing payment claims, and said the county owes his organization $530,000, mostly for operating costs. Coven said Scholar Fund previously administered Covid relief funds for the county, state, and City of Seattle with no such problems. He said he’s never encountered this level of program scrutiny.

“It felt as though no level of documentation would suffice,” Coven said. “Bank statements, individual transactions, individual receipts to transactions, individual payments, screenshots of dozens of individual payments, their internal program folks reviewing every line item and picking it apart.”

The subsidy payments began in November 2022, and within months served 1,800 children.

Last fall, the program stopped accepting applications or spots on the waitlist as the county grappled with the contract termination. By the start of this year, 1,361 children received child care funding.

The county recently changed administrators to BrightSpark Early Learning Services, formerly known as Child Care Resources, which has made 92 percent of the missing payments, Tollenaar Cafferty said, and is working to identify any other payments providers did not receive.

Meanwhile, the county and Scholar Fund remain in conflict about how many payments were actually missed. In an email to the county last week, L. Darrell Powell, Scholar Fund chief financial officer, accused the county of scapegoating the organization as the county rapidly ended the contract.

“Your statement regarding 900+ missing payments is the first time this issue has been raised, many months after the contract termination,” Powell wrote, citing “the seriousness of the allegation.” He asked for detailed accounting.

Powell was recently appointed as interim chief executive officer of King County Regional Homelessness Authority, a partnership primarily between the City of Seattle and the county, but he continues his work on behalf of Scholar Fund in its dispute with the county.

The county did not realize the extent of the missing payments, which occurred in the final months, until it canceled the contract with Scholar Fund, Tollenaar Cafferty said.

“They're indicative of the reasons that we did choose to terminate that contract and move to a new program administrator,” she said. “Namely, fiscal mismanagement, poor customer service, and really an inability to build the systems and processes that we believe needed to be in place to manage a program of this scale and size.”

Coven called claims of fiscal mismanagement “unfair,” and said the county informed his organization just last week that it had identified $1.1 million in missed payments. He said the county has provided no further details.

“Scholar Fund did not submit any invoices or reimbursement requests to the county for the 'missing' 900 payments,” he wrote. “These relate to payments awaiting processing.”

Coven said Scholar Fund notified the county that it did not have the cash on hand to make 277 of the final subsidy payments to providers, and asked the county to do so, thus delaying those payments.

The county has paid Scholar Fund $28.9 million for the child care program, said Rogers. Most of that went to providers; $2.9 million went toward the organization’s operating expenses.

Scholar Fund had no previous experience managing child care subsidies. It was incorporated in 2016 and originally known as Scholarship Junkies, an organization that helped students identify scholarship opportunities. It garnered media attention for its successes in that arena, and for years, University of Washington President Ana Mari Cauce served on its board of directors.

During the pandemic, Scholar Fund shifted its focus to administer about $170 million in Covid relief fund direct cash assistance, primarily on behalf of state and local governments, including the Washington Family Relief Fund, King County Relief Fund, and the City of Seattle Small Business Stabilization and Disaster Relief Funds.

As federal Covid relief funds dwindled, administering the Best Starts for Kids child care subsidy program seemed like a natural fit for Scholar Fund, said Coven.

“While the domain of child care is unique, the delivery mechanisms and the administration piece are very similar to the past programs,” he said.

Tollenaar Cafferty, at the county, said problems became evident early on in the subsidy program.

“We engaged in a lengthy corrective action process over the better part of a year that included significant time from our fiscal and programmatic staff to try to support improvements and address challenges,” Tollenaar Cafferty said.

The county and Scholar Fund had already agreed to terminate a related $15.5 million contract and let the nonprofit focus on administering the child care subsidy, she said. The other contract, also part of Best Starts for Kids, involved boosting the pay of low-wage child care workers.

“Scholar Fund has played a key role in the administration of nearly $200 million in aid to over 180,000 families, community members, students, workers, child care providers, and others at nearly every level of government from the state, county, to city,” wrote Princess Shareef, board chair at Scholar Fund. “Through all that, the board has never received service delivery complaints like this,” she said.

There have been long-standing issues regarding the organization’s financial transparency, however: Scholar Fund has not filed an IRS return since the 2020 tax year, even as it grew to handle tens of millions of tax dollars.

The county did not know until after the fact that the organization was administratively dissolved by the state in February 2023, for two months, when it failed to complete its annual registration with the Secretary of State.

State law requires that nonprofits stop doing business while administratively dissolved. Scholar Fund continued handling millions of tax dollars each month. The nonprofit renewed its state registration in April.

Rogers said that the county’s understanding was that the organization had instead lost its state charity status - a different registration - and that it was barred only from receiving direct donations from the public during those months.

To navigate the county contract and its reporting requirements, Scholar Fund hired L. Darrell Powell as a part-time chief financial officer on a contract basis, Coven said, “to evaluate the systems and evaluate the flow of funds, help us catch up and to help us build a framework for growth and a framework for being able to trace details and work with the county at their various requests.”

Powell declined an interview request, instead writing by email, “As a contractor, I was not involved in day-to-day decisions.”

Powell said he “provided specific guidance to address existing organizational challenges - improving accounting practices, remedying administrative financial issues, and establishing a more robust fiscal system tailored to meet the organization's evolving needs.”

For child care providers, like Fawsia Diriye in Kent, it doesn’t much matter who administers the Best Starts for Kids subsidies, so long as they get paid reliably.

“I mean, we pay bills, and we have to pay my employees. If I'm not getting paid on time, it's not good,” Diriye said. “I’m just tired of it.”