@frostily0495
Yes, there are a number of federal regulations the FSA administrator must follow, although I don't have a link to them. If the FSA plan makes too many unallowable payments, and the IRS audits the plan, the employer can be barred from offering an FSA benefit in the future. This is one of the reasons that the employer hires a benefits administrator company to handle the plan (in most cases) so they don't have to know the rules themselves. The plan must do some kind of verification that the payments are legitimate, for example by requiring a receipt, the name of the care provider, and a signature from you certifying that the expenses were provided for qualifying care.
There is, of course, a second level of verification. You must certify when filing your tax return that everything on your tax return is true, and this includes that the child care expenses you report are "qualifying" under the regulations. The bottom line is that if you submit a claim for non-qualified expenses, then even if the plan allows it (because of sloppy bookkeeping, or a good faith error), you are still subject to audit yourself (although most taxpayers are never audited, the odds are about 1%).
As far as hiring another babysitter for nights or weekends, remember that care is only qualifying if it is provided while you are working. Babysitting so you can have a date night is not qualifying care for the credit. (Suppose you work the night shift and your spouse works days. Could you hire a caregiver to watch your children during the day while your wife was at work so you could sleep? I don't know the answer to that one.)
Of course, if you have a receipt from the caregiver that just says "babysitting services" or something, and you certify that it was for qualifying care, you can probably get reimbursement from the plan. They aren't going to ask to see your time card. And form 2441 just asks for the amount spent for "qualifying care" and the name and tax number of the provider, so you could include the expenses as qualifying care on form 2441, and only get caught if audited. But the legally correct thing to do is to only submit an FSA claim for "qualifying expenses" and to only include "qualifying expenses" on your tax return.
Based on the pro-rata rule for prepaid expenses, it seems to me that you will only have $3600 of qualifying care before the expiration of the grace period. But I could be wrong, and if you want a definitive answer, you will need to hire your own expert who will stand behind you if audited.
