An independent report shows the Education Ministry is preparing to take a tougher line on fraud by early childhood services.
The review of a special unit that identified and raided high-risk early learning services said fraud was not a focus for the group, but it would be in future.
The review, obtained by RNZ under the Official Information Act, endorsed the work of the Provider Assessment Group, which the ministry is reinstating after running it as a pilot project that finished in October last year.
The group investigated mostly home-based education services and cancelled up to 17 licences across nine services for breaches of early childhood rules, most of them related to health and safety.
However, its work did not result in any fraud charges and documents previously provided to RNZ showed the group had intended to hire staff to focus on financial fraud.
The report also recommended an urgent review of early childhood rules to ensure they supported fraud investigations.
"This should consider the creation and implementation of a Ministry prosecution policy and a process for escalation through to the NZ Police and/or Crown solicitor," it said.
The Education Ministry said it already had a prosecutions policy and it was currently working through a review of early learning regulations.
The Provider Assessment Group claimed to have saved early childhood subsidies totalling $6 million a year, but the report said that was misleading.
"When the PAG stops funding for non-compliant educators, those children will probably move to a new service provider and therefore as the funding is calculated per child, the funding will be reallocated to a new provider rather than saved," it said.
It also recommended improvements to the group's method for assigning risk ratings to early childhood services based on factors including children's attendance, funding and Education Review Office reports.
The report said the group assigned risk scores to services, but it used different scales of measurement for different factors and did not recognise that some factors were more important than others.
The report said the temporary nature of the group led confusion in other parts of the ministry about its role, especially when their responsibilities overlapped.
"The PAG is changing between funding, fraud and health and safety focuses all the time and it is unclear which the primary focus is," the report said.
The report noted challenges the group faced when investigating centres including occasions when educators denied the team entry despite their legal right to examine the site.
It said it took about a week for the group to plan a surprise visit and, once on-site, it needed time to copy documents and ensure educators did not change their records.
The report said the group needed to investigate all aspects of a service.
"It was noted that there are occasions where, upon identifying a serious issue (e.g. health and safety), the PAG team gathers only sufficient evidence to make sanctions relating to that issue, rather than completing a comprehensive assessment.
"This is to reflect the seriousness of the issue and the need to act immediately rather than wait for the assessment to be completed. This risks other relevant issues exhibited by providers not being discovered and, should they regain their licence at a later date (e.g. by subsequently demonstrating that they can comply with health and safety standards), these other potential issues may not have been resolved," it said.
The Education Ministry's deputy secretary sector enablement and support, Katrina Casey, said the group is aimed at strengthening the ministry's assurance abilities, including ensuring public money is used appropriately.
"It has always been the intention of PAG to focus on repeated and/or serious non-compliance, including fraud, but we also recognised that we had to develop this capability," she said.
Casey said the ministry was finalising the appointment of a manager for the group who had risk and compliance expertise.