$30 Billion Welfare Fund Mismanagement: How Lack of Oversight Turned Aid into a State ‘Slush Fund

Over $30 billion designated for aiding America’s neediest families has been redirected into a variety of programs, such as college scholarships and government budget supplements, effectively turning it into a ‘slush fund.’

The Temporary Assistance for Needy Families (TANF) program was established nearly 30 years ago with the goal of providing direct financial aid and services to struggling families.

Currently, TANF allocates about $16.5 billion annually from federal funds, which is further supported by approximately $15 billion from state contributions.

However, federal auditors and analysts have raised concerns that the program’s design—granting states significant control over spending with minimal reporting obligations—makes it challenging to track the precise use of these funds.

According to Hayden Dublois from the Foundation for Government Accountability, states frequently allocate TANF funds to initiatives that only tangentially benefit poor families. He characterized this 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.

The US Capitol in Washington, DC, where lawmakers face mounting pressure to tighten oversight of the $30 billion TANF welfare program amid warnings of widespread misuse and weak accountability

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’

President Donald Trump has intensified scrutiny of federal welfare spending, with his administration targeting billions in assistance funds over concerns about fraud and misuse

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.

Florida Governor Ron DeSantis leads one of several states where auditors have identified deficiencies in oversight and documentation tied to federal TANF welfare spending

Louisiana Governor Jeff Landry oversees a state where auditors repeatedly flagged failures to properly verify and document TANF program compliance

Connecticut Governor Ned Lamont’s administration pledged stronger oversight after auditors found gaps in monitoring millions of dollars in TANF funds distributed to subcontractors

Minnesota Governor Tim Walz has faced scrutiny amid major fraud investigations involving federally funded child care and nutrition programs in his state

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.

The US Treasury Building in Washington, DC, where billions in taxpayer funds flow into federal welfare programs such as TANF, which critics say lacks sufficient oversight

The Texas State Capitol in Austin, where officials oversee TANF spending, including funds directed toward programs beyond direct cash assistance to low-income families

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. 

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

College graduates attend a commencement ceremony, as audits revealed some states used welfare funds to finance scholarship programs critics say benefited students beyond the program’s original poverty-relief mission

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

FBI Director Kash Patel said federal agents have ‘surged personnel and investigative resources to Minnesota’ as part of a crackdown on large-scale fraud involving taxpayer-funded assistance programs

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.