After a damning audit released in April identified misspending and fraud at the Community Child Care Council of Santa Clara County (4Cs), the nonprofit came close to losing the vast majority of its $43 million-a-year in government funding. But state regulators threw the struggling agency a lifeline by extending its contract for another year under conditional status.

All 4Cs had to do was follow the rules set by the California Department of Education (CDE). But that was apparently  too much to ask from the embattled 45-year-old nonprofit, which offers subsidized day care to roughly 6,000 children so their parents can lift themselves out of poverty.

Last month, 4Cs failed to pay its child care providers on time and didn’t even send out a notice to expect a delay, leaving them scrambling to pay their personal bills. It was hardly the first time the nonprofit lapsed on its reimbursements, which day care operators like Christina Johnson depend on for their livelihood.

“I had to pay late fees on my other bills because I didn’t get my check on time,” she said in a phone call Thursday. “That means I also had to take time to call around to all these [bill collectors] to explain why I didn’t have money to meet those obligations. It’s very embarrassing and also irresponsible, and I’m not either of those things.”

The latest misstep by 4Cs caused financial hardship for an untold number of families and showed that legislators who placed the agency under audit were right to be concerned by the CDE’s decision to renew funding for another year.

At a June 27 Joint Legislative Audit Committee hearing to discuss the April report’s findings, Assemblyman Ash Kalra (D-San Jose) and state Sen. Jim Beall (D-San Jose) expressed dismay about 4Cs persuading the state to give it another chance despite its longstanding inability to comply with the terms of government contracts.

Auditors found that 4Cs fraudulently backdated child care renewal forms, which gave parents little to no time to respond and resulted in hundreds of impoverished kids losing day care. They found that 4Cs used CDE grants to pay for unauthorized expenses, including an executive pension that stood to benefit the nonprofit’s former executive director, Alfredo Villaseñor, who resigned a year ago once regulators started taking a closer look at his decades-old organization.

And when regulators found problems at 4Cs’ preschools, the nonprofit shut them all down to avoid complying with a conditional contract extension that required stronger oversight of the rest of its state-funded programs.

Throughout the course of the audit, 4Cs’ interim director Joe Manarang, its ethically challenged board president Ben Menor and management staff failed to provide requested documentation, shifted blame on the previous executive and claimed ignorance during interviews with state investigators.

What’s more, the the audit reflected poorly on the CDE, which failed to identify any of the problems despite numerous red flags over the years. The legislative audit that focused on 4Cs highlighted problems with CDE oversight that potentially has statewide implications.

CDE officials explained at the June audit hearing that they have a staff of 18 people tasked with monitoring about 1,300 such contracts throughout the state, which makes it difficult to spot the kinds of problems that have plagued 4Cs. Even if CDE catches violations and threatens to pull funding, it gives the contractors a chance to appeal to an independent review board with no chance for the public to weigh in.

When 4Cs appealed the CDE’s imminent defunding this past spring, an independent board renewed its contracts. At the June 27 legislative hearing, Beall called the appeals process unfairly one-sided because the people affected by the dysfunction at 4Cs—employees, parents, children and day care providers—had no chance to make their case.

“It’s unfortunate that the Legislature was not involved and it’s unfortunate that the public was not involved,” Beall lamented. “It shows a culture that I do not appreciate.”

The CDE is conducting its own audit of 4Cs, which is expected to wrap up sometime this fall. Meanwhile, employees who have been struggling to unionize are suing the nonprofit over its questionable retirement accounts.

Neither Menor nor Manarang returned San Jose Inside’s request for comment.