In a recent raid conducted by Australian Federal Police, two young men in Sydney’s West were suspected of having used family day care subsidies amounting to $27 million to aid Islamic State.
In another case a 19-year-old received funding to look after 18-year-old twins.
Federal police have charged 13 people in relation to the alleged fraud in the past 10 months and The Australian newspaper reports leaked documents show more than $8 million in assets has been seized in Australian Federal Police raids since December.
Family Day Care is more difficult to regulate than centre-based care because children are minded in private homes.
Federal Education Minister Simon Birmingham has confirmed there's been systemic rorting in the industry.
He says his government has already taken strong action to close various loopholes which has prevented $421 million - or more than $8 million a week - being paid to dodgy providers.
"Some parts of the child care sector have sought to exploit loopholes and we've been closing those loopholes as quickly as we find them," Mr Birmingham said in a statement on Tuesday.
Since the crackdown six Victorian providers have been suspended and 15 others had their licences cancelled.
Over the 2015-16 Financial Year a total of 49 providers had their accreditation cancelled across the country.
Following reports of systematic rorting of the subsidy system, the Victorian government says the Commonwealth should cease funding new Family Day Care services in areas where there are sufficient providers.
The state government on Tuesday called for an independent review into federal funding following claims that dodgy providers had defrauded Australian taxpayers of more than $1 billion.
Victorian Families Minister Jenny Mikakos told AAP in a statement that a review was needed and "until that review is complete the Turnbull government should cease funding Family Day Care services in areas already saturated with services".
The federal government last month introduced a child care reform package that includes new compliance measures, including focusing on those who rorted the system by claiming funding to take care of their own children or siblings.
