A Treasury Department review of Internal Revenue Service child care centers has called for improved policy and accounting procedures after highlighting shortcomings including one case in which the IRS spent $35,000 a year to keep one child of an employee in day care.

The audit was carried out by the Treasury inspector general for tax administration at the request of the IRS after the agency raised concerns about the high costs paid by the government for child care centers.

The General Services Administration is responsible for setting up and overseeing child care facilities in GSA-managed buildings. About 7,800 children are enrolled at 112 GSA centers, 47 of which are partly funded by the IRS.

The inspector general said that 4,297 of those children, or 55 percent, are dependents of federal employees but noted that federal law requires each child care center to meet a minimum of 50 percent enrollment of children of federal workers or federal contractors. Federal law also requires that the children of federal workers and contractors get enrollment priority.

It found that several of the centers for which the IRS pays part of the operating costs did not meet this requirement. Because the GSA allocates costs to federal agencies such as the IRS based on square footage occupied rather than number of children enrolled, this led to significant increases in costs per child, the report said. In one Denver center, the IRS estimated it paid $35,000 a year, despite the fact that only one IRS employee had a child in the center.

The report's authors said they were advised by the head of the GSA's child care program that the main reason for noncompliance with the enrollment minimum was that there are fewer federal workers with young children than in the past.

The inspector general said the GSA also noted that its policy allows children of non-federal employees to remain in a center even though there is a waiting list of federal employees' children "because of the importance of continuity in a child's care and education."

The report acknowledged that agencies cannot stop paying for joint use facilities even if their employees avail of none or only some of them.

"Thus there is little the IRS can do to reduce its payment to the GSA when employee participation in child care centers declines," the report stated.

The review found that the cost of child care facilities and employee participation had not been monitored, leading to difficulties in determining the costs and benefits to participating agencies. Noting that neither the IRS nor the GSA could provide the actual costs paid for IRS funded facilities, the report said child care programs "should be subjected to better financial management scrutiny than that currently performed at the IRS."

The audit also found that the IRS had been inconsistent in the child care subsidies it had paid. "As such, lower income employees receive very little benefit from the subsidy program," it noted. The IRS has now suspended funding for the subsidy because, the agency said, "it failed to directly support critical recruitment and retention objectives."

The IRS also said it is committed to addressing and resolving the other concerns raised in the report's findings.

Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, said the issue of inadequate accounting needs to be addressed.

"The government needs to track what it spends on child care and who uses it. That's just common sense," he said. "The GSA needs a better handle on child care programs government-wide. Otherwise, the taxpayers could continue to overspend, and nobody will really know whether government child care is going to eligible employees, as Congress intended."