US Welfare Program Diverts $30 Billion from Poor Families to Scholarships and Budgets
A landmark federal welfare program designed to support America's most vulnerable families has instead diverted more than $30 billion in taxpayer funds into initiatives ranging from college scholarships to government budget backfills, according to auditors and policy experts. The Temporary Assistance for Needy Families program, known as TANF, has become what critics describe as a loosely monitored 'slush fund' with minimal safeguards against misuse.
Program Structure Enables Widespread Diversion
Created nearly three decades ago as part of sweeping welfare reform legislation signed by President Bill Clinton, TANF was intended to provide direct financial support and services to struggling families. Today, the program distributes approximately $16.5 billion annually in federal funds, supplemented by roughly $15 billion in state contributions. However, the program's structure grants states broad control over spending with limited federal reporting requirements, making it difficult to track how billions of dollars are ultimately used.
Hayden Dublois of the Foundation for Government Accountability described the system's lack of oversight as 'fraud by design,' estimating that roughly one in five TANF dollars, or about $6 billion each year, is misspent. 'There are very little, if any, safeguards,' Dublois told the Wall Street Journal.
Shift Away from Direct Assistance
Despite the program's substantial funding, federal data reveals that fewer families now receive direct cash assistance than in previous decades. Approximately 849,000 families received monthly TANF payments in fiscal year 2025, down significantly from about 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, noted that 'the program has drifted away from the core purpose of supporting families with very little income.' This shift reflects a broader transformation in how TANF operates, with funds being redirected to purposes critics argue fall outside the program's intended mission.
State Audits Reveal Persistent Oversight Problems
Audits conducted across multiple states have uncovered consistent deficiencies in oversight and financial reporting. In Louisiana, auditors found in 2024 that state officials failed to verify required work participation hours tied to TANF eligibility—marking the thirteenth consecutive year auditors flagged the same issue. The audit also identified gaps in documentation showing how TANF funds were distributed to contractors.
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. Similar oversight problems have been identified in Florida, Oklahoma, and other states, demonstrating that weaknesses in TANF spending controls extend across political jurisdictions.
Questionable Expenditures and Program Drift
State and federal records show TANF money has been used for a wide range of programs that critics say deviate from the program's original poverty-relief mission. These include college scholarship programs benefiting students from middle-income families, payments to anti-abortion 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. Texas spent approximately $251 million in TANF funds on foster care and child welfare programs in fiscal year 2023, while just 1.9 percent of TANF spending went directly to basic assistance payments.
Federal Oversight Challenges and Fraud Scandals
Ann Flagg, who oversaw TANF at the federal level during the Biden administration, explained that the program's layered structure makes monitoring difficult. '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.
Concerns about misuse have been amplified by major fraud scandals in Minnesota, where federal and state investigators uncovered schemes involving millions of taxpayer dollars intended for child care and food programs. In one case, operators of daycare centers billed the government for services never provided, with surveillance footage showing parents briefly bringing children to facilities before leaving immediately.
FBI Director Kash 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.'
Repeated Warnings and Lack of Reform
The Government Accountability Office has repeatedly warned about weaknesses in TANF oversight, finding that audits in 37 states identified 162 deficiencies in financial oversight, including 56 considered severe. The agency criticized 'opaque accounting practices' among groups receiving TANF funds and has recommended since at least 2012 that Congress strengthen reporting requirements and expand federal oversight.
Robert Rector, a senior fellow at the Heritage Foundation who helped draft the original legislation, argued that '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 statute. He added that both Republicans and Democrats share responsibility for failing to enforce stricter oversight.
Despite growing scrutiny and repeated warnings from auditors and watchdog agencies, Congress has not enacted comprehensive reforms. The Trump administration recently moved to freeze billions in federal welfare-related grants to several states over fraud concerns, but a federal judge temporarily blocked the freeze after states challenged the action in court.
