How $30BILLION of taxpayers' money put aside for welfare pot became a 'slush fund' for states with lack of oversight: 'Fraud by design'
By James Gordon
Daily Mail
Feb 8, 2026
President Donald Trump has intensified scrutiny of federal welfare spending, with his administration targeting billions in assistance funds over concerns about fraud and misuse
More than $30 billion in taxpayer-funded welfare money intended to help America's poorest families has instead beeen used as a 'slush fund' - diverted into programs ranging from college scholarships to government budget backfills.
The Temporary Assistance for Needy Families program, known as TANF, was created nearly three decades ago to provide direct financial support and services to struggling families.
Today, the program distributes about $16.5 billion annually in federal funds, supplemented by roughly $15 billion in state contributions.
But federal auditors and analysts say the program's structure, which gives states broad control over spending with limited reporting requirements, has made it difficult to track how billions of dollars are ultimately used.
States often use TANF money to finance programs with only indirect connections to helping poor families, said Hayden Dublois of the Foundation for Government Accountability. He described the system's lack of oversight as 'fraud by design.'
'There are very little, if any, safeguards,' Dublois told the Wall Street Journal.
He estimates that roughly one in five TANF dollars, or about $6 billion each year, is misspent.
Former President Bill Clinton is seen signing a controversial welfare reform bill in White House Rose Garden in 1996. At the time he spoke of 'ending welfare as we know it'
Despite the program's size, fewer families now receive direct cash assistance than in previous decades.
Federal data shows that about 849,000 families received monthly TANF payments in fiscal year 2025, down from approximately 1.9 million families in 2010.
Instead, states have increasingly directed funds to contractors, nonprofits and other government programs.
Nick Gwyn, a policy expert with the Center on Budget and Policy Priorities, said the shift reflects a broader transformation in how the program operates.
'The program has drifted away from the core purpose of supporting families with very little income,' Gwyn told the WSJ.
Audits conducted in multiple states have uncovered persistent problems with oversight and financial reporting.
In Louisiana, auditors found in 2024 that state officials failed to verify required work participation hours tied to TANF eligibility - the 13th straight year auditors flagged the same issue.
The audit also found gaps in documentation showing how TANF funds were distributed to contractors.
Minnesota Governor Tim Walz has faced scrutiny amid major fraud investigations involving federally funded child care and nutrition programs in his state
Americans line up for food assistance, as critics warn billions in welfare funds intended to help vulnerable families may be diverted to programs with limited direct benefit to those in need
Louisiana officials said they agreed with the findings and would improve oversight.
In Connecticut, auditors reported that the state did not adequately review financial reports from more than 130 subcontractors receiving $53.6 million in TANF funds, making it difficult to confirm whether the money was spent on approved purposes.
Connecticut officials said they would strengthen compliance procedures.
Auditors also identified oversight problems in Florida, underscoring how weaknesses in TANF spending controls extended across states regardless of political leadership.
In Oklahoma, state auditor Cindy Byrd said her office has similarly found weak documentation tracking TANF expenditures.
State and federal records show TANF money has been used for a wide range of programs critics say fall outside the program's intended mission.
These include college scholarship programs benefiting students from middle-income families, payments to antiabortion pregnancy centers, and child welfare programs already supported by other federal funding sources.
In Michigan, more than $750 million in TANF funds were directed into scholarship programs between 2011 and 2024, according to the Michigan League for Public Policy.
In Texas, federal data shows the state spent about $251 million in TANF funds in fiscal year 2023 on foster care and child welfare programs, while just 1.9 percent of TANF spending went directly to basic assistance payments.
Ann Flagg, who oversaw TANF at the federal level during the Biden administration, said the program's layered structure made it difficult for federal officials to monitor spending.
'Knowing that there were so many layers between the activity on the ground and the federal perch, there were many, many instances, I am sure, that funds were used in crazy ways,' Flagg said.
The biggest scandal involving TANF funds took place in Mississippi. The embezzlement scheme saw at least $77 million of taxpayers' money go toward frivolous things instead of helping those in need in America's poorest state, according to authorities.
Instead of helping the less fortunate, cash was splurged on a lavish home in Jackson, cars, paying off a non-profit leader's speeding ticket, and funding a new $5 million volleyball stadium at Mississippi University, among other items, authorities said.
A total of seven people have pleaded guilty to state or federal charges related to the fraud case, but former WWE wrestler Ted DiBiase Jr decided to plead not guilty and stand trial.
Concerns about misuse of public welfare funds have been amplified by a series of major fraud scandals in Minnesota, where federal and state investigators uncovered schemes involving millions of taxpayer dollars intended for child care and food programs.
Trump's fraud crackdown was ignited by issues in Minnesota, but the state's cases are unrelated to TANF.
In one case dating back to the 2010s, authorities found the operators of several daycare centers billed the government for services that were never provided, with surveillance footage appearing to show parents briefly bringing children to facilities before leaving immediately.
Prosecutors later said the scheme allowed providers to collect reimbursement payments despite not delivering actual care, and several individuals pleaded guilty to felony theft by swindling.
More recently, federal authorities have investigated what they described as a vast fraud network involving federally funded child nutrition programs.
FBI Director Kash Patel said the bureau had 'surged personnel and investigative resources to Minnesota' to dismantle fraud schemes exploiting federal assistance programs.
Patel warned that such activity may represent 'the tip of a very large iceberg,' adding that 'fraud that steals from taxpayers and robs vulnerable children will remain a top FBI priority in Minnesota and nationwide.'
Federal watchdog agencies have also repeatedly warned about weaknesses in TANF oversight.
The Government Accountability Office found that audits in 37 states identified 162 deficiencies in financial oversight, including 56 considered severe.
The agency criticized what it described as 'opaque accounting practices' among groups receiving TANF funds.
The GAO has recommended since at least 2012 that Congress strengthen reporting requirements and expand federal oversight.
Those recommendations have not been enacted.
The ongoing fraud scandal in Minnesota dates back a decade as a 2015 video shows parents appearing to pretend to drop their children off at a phony daycare center
In testimony to Congress, GAO official Kathy Larin said states often use TANF funds precisely because of their flexibility.
'States told us they use TANF because it's more flexible and can cover costs not eligible' under other federal programs, she said.
TANF was created in 1996 as part of sweeping welfare reform legislation signed by President Bill Clinton, who described the measure as 'ending welfare as we know it.'
The reforms replaced an open-ended federal entitlement with block grants, giving states significant authority over spending decisions.
Supporters credited the program with reducing welfare dependency, but critics say the system created incentives for states to redirect funds away from direct aid.
Robert Rector, a senior fellow at the Heritage Foundation who helped draft the legislation, said the program has drifted from its original goals.
Recipients gather at a food distribution site, highlighting the low-income families the TANF program was originally designed to support through direct assistance and services
'Today all states are in de facto violation of the law' because they aren't spending all TANF funds on the intended purposes outlined in the original law, Rector said.
He added that both Republicans and Democrats share responsibility for failing to enforce stricter oversight.
The Trump administration has recently moved to freeze billions in federal welfare-related grants to several states over concerns about fraud and misuse, including funds tied to TANF.
Several states challenged the move in court, and a federal judge temporarily blocked the freeze.
Despite growing scrutiny and repeated warnings from auditors and watchdog agencies, Congress has not enacted any comprehensive reforms.
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