Director of Early Years Care Marie Armstrong Smith vowed to fight the action and said the organisation had the support of parents and child care workers.

The Department of Education and Training confirmed it had cancelled services, meaning Early Years Care can no longer receive Australian Government fee assistance for any child care from June 11.

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The provider has 28 days to respond to the Notice of Intention to Sanction – which outlines the reasons for the proposed action.

The organisation runs about 80 home daycare centres, with the majority in the Illawarra. 

Each centre looks after children for up to 10 families.

Ms Smith confirmed the action could mean 85 staff would be out of work and 800 children would be out of care. 

But she said the audit had listed “a series of very minor issues” and claimed the report had many “mistakes” including children listed that were “not even enrolled in our service”.

Ms Smith said she would be appealing the notice.

“We are like a huge family at Early Years Care and we are really suffering at the moment,” Ms Smith said.

Single mother Hayley Day of Woonona is devastated at the news and said she can’t afford paying full fees, yet she can’t take her three-year-old Jacob to work with her.

“My educator couldn't even speak last night because she was so upset,” she said. “It’s given parents no time to find alternative care.”

A Department of Education and Training spokesman could not comment on specific cases but said it took the issues of non-compliance very seriously.

The spokesman said the department had increased its compliance measures to crack down on “dodgy” providers ahead of the new $2.5 billion Child Care Package that comes into force from July 2.

“The department … is prepared to take robust action, including prosecution in the courts, to ensure taxpayer funding is not misused.”