The issue was highlighted last month when Joanne Welsh, a Tyneside hairdresser, was jailed for five months after admitting she had falsely claimed nearly 26,000 in tax credits, including childcare costs over three years that she had not incurred.
Jennifer Hayes, development worker at Hurley Pre-school in Kennington, London, said it appears to have become easier to cheat the system since the Government introduced changes to the way parents apply for tax credits.
Since April 2003, parents are no longer required to get providers to sign forms confirming that a child is attending a setting and how much it costs.
Under the new system, parents merely have to obtain the setting's unique registration number and submit their application without reference to the provider.
But an Inland Revenue spokesman said there was 'no evidence whatsoever of an increase in tax credit fraud' and consultation with provider representatives found they 'were very much in favour of not having to sign tax credit application forms. Childcare providers told us they thought the requirement that we authorise every change of circumstances would add extra unnecessary compliance burdens, and undermine the responsiveness of the new system.'
The Government has argued that demand-side funding to parents gives them greater choice.
But, arguing for funding direct to providers, Ms Hayes said, 'If parents have chosen your pre-school or nursery, they have made their choice. As a voluntary group, fraud could affect us a lot because we don't get any statutory money apart from the nursery education grant and most of our full-day places are taken by children of parents claiming childcare tax credits.'
Sue Johnson, acting chair of the National Childminding Association, said, 'A lot of childminders are expressing concern. Once parents have the registration number, they may put their child with a childminder for a few weeks and then use a grandparent or friend, while still claiming the money.
If we don't know they are claiming the tax credit we can't inform the Inland Revenue.'
Jackie Nunns of Trojans out-of-school clubs in south London said the Inland Revenue had sent up to 200 letters asking whether children were attending the scheme and half the children mentioned had never attended the clubs.
