Texas paid $8.2M to a foster contractor its auditor flagged Priority
Summary
The Texas State Auditor's Office examined the finances of two of the state's 226 legacy-model residential foster-care contractors and gave both a Priority finding -- its most severe rating. One, Covenant Kids Inc., took undisclosed cash advances and had weak cost-reporting and expenditure-approval controls even as it holds an $8,246,338.64 state contract, the largest of nine active contracts worth $17.0M. The other, Bluebonnet Haven LLC, left $721,459 in related-party transactions off its cost report. Both contractors agreed with the findings.
Two of 226 providers, both flagged
Texas Government Code Section 2155.1442 requires on-site financial audits of legacy-model foster-care providers, chosen by risk rating, fraud allegations, or other criteria. Of 226 legacy-model providers⧉ in fiscal year 2024, Report No. 26-002 (October 2025) covered two -- and both drew a Priority-rated fiscal-processes finding.
View data as table
| HHS000455400001 | 8,246,338.6 | Largest active contract |
|---|---|---|
| HHS001237500005 | 2,505,668.5 | |
| HHS000963400008 | 1,342,472 | |
| HHS000963400004 | 1,194,097.2 | |
| HHS001428600119 | 977,741.5 | |
| HHS000963400009 | 947,369 | |
| HHS000963400007 | 690,518.8 | |
| HHS000963400005 | 634,319.7 | |
| HHS000963400006 | 492,434.8 |
Covenant Kids: cash advances, unreported related-party costs
Covenant Kids -- an Arlington nonprofit with 13 Department contracts and $11,040,384 in reported 2024 foster-care expenditures -- did not disclose two related-party cash advances totaling $100,000⧉. Its cost report had 4 of 7 tested line items wrong, $21,974 in unallowable expenditures, and $6,415 in related-party wages left unreported. It had not had an independent financial-records review since its last completed audit, for fiscal year 2021, and could not show the required reserve funds.
Bluebonnet Haven: related-party transactions off the books
Bluebonnet Haven LLC -- a Brenham operation with $3,464,297 in reported 2024 expenditures on its own $7,048,572.84 state contract⧉ -- left 6 related-party transactions totaling $721,459 off its cost report, and could not document $173,734 paid to its CEO and a family member.
View data as table
| Bluebonnet Haven — related-party transactions left off its cost report | 721,459 | 6 transactions |
|---|---|---|
| Bluebonnet Haven — payments to CEO and family it could not document | 173,734 | |
| Covenant Kids — undisclosed cash advances from related-party businesses | 100,000 | 2 advances |
| Covenant Kids — related-party wages left off its cost report | 6,415 |
- The Texas State Auditor examined two of the state's 226 legacy-model foster-care contractors and rated both providers' fiscal processes Priority -- the audit's most severe issue rating.
- Covenant Kids Inc. took $100,000 in undisclosed related-party cash advances and had weak cost-reporting and expenditure-approval controls, while holding an $8,246,338.64 active state contract confirmed live in the Department's own listing.
- Bluebonnet Haven LLC left $721,459 in related-party transactions off its cost report and could not document $173,734 paid to its CEO and a family member.
- Both contractors agreed with every finding and recommendation; the audit describes disclosure and control weaknesses that increase the risk of fraud and abuse, not established losses.
The dollar figures behind the Priority findings are disclosure, documentation, and control failures the auditor identified -- not amounts established as diverted or lost. Both providers agreed with the findings and described remediation, from new expense-approval software to independent audits. Auditors also communicated certain security-related weaknesses in separate confidential reports, rated High for Covenant Kids and Medium for Bluebonnet Haven. Because the State Auditor selects providers by risk rating and other criteria rather than at random, these two are not a representative sample of the 226 legacy-model providers. Contract values are the Department's own listed active-contract amounts, current as of August 14, 2026.
Sources(2) ▾
- Texas State Auditor's Office, An Audit Report on On-site Financial Audits of Selected Residential Foster Care Contractors (Report No. 26-002) (2025-10-01) — Primary source for every audit figure, finding, and issue rating in this piece: the State Auditor's on-site financial audits of two legacy-model residential foster-care contractors -- Covenant Kids Inc. (Chapter 1-A fiscal processes, Chapter 1-B foster-home monitoring) and Bluebonnet Haven LLC (Chapter 2 fiscal processes) -- including each provider's fiscal-year-2024 summary, the segregation-of-duties, cash-advance, related-party, and cost-report findings, the confidential security findings summarized on p.2, and both providers' written management responses. sao.texas.gov · original document
- Texas Department of Family and Protective Services, Active Client Services Contracts (2026-08-14) — Primary source for the live contract dollar figures: the Department's own contract-transparency listing of active client-services contracts, which lists nine active Covenant Kids Inc. contracts (largest HHS000455400001 at $8,246,338.64) and one Bluebonnet Haven LLC contract (HHS001427700145 at $7,048,572.84). dfps.texas.gov · original document
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When the Texas State Auditor's Office⧉ sent auditors to examine two of the state's foster-care contractors' finances, both came back with a Priority finding -- the audit's most severe rating. One, Covenant Kids Inc., took undisclosed cash advances and had weak cost-reporting controls while holding an $8,246,338.64 active state contract⧉ -- the largest of nine worth $17.0M combined.