Where somebody is determined to prioritise their personal treats over their childrens' needs they will find a way.
Selling WIC products, like babymilk, food vouchers etc is hardly unheard of in the states that already has a model of restricted spending.
You also have to take into account the costs of implementing restricted spending as opposed to single payments.
I understand the frustration of knowing children are going without basic needs while their parent/s feed their wants. But restricted spending schemes aren't going to change that reality for the hardcore wasters who couldn't put their kids first if their lives depended on it.
The only thing to do there, and I'm sure it will stick in the throat of many, is to have an additional emergency fund so if sure start, SS or school is aware a child is being deprived due to parental priorities being put of whack extra non parent directed funds can be focused on where the specific need is. Like suitable clothing, additional nutritous food to be distributed and eaten on site (so it can't be resold), stuff like that.
I know that looks like rewarding the parents who fail to parent well at the expense of those who succeed even in the worst of circumstances. But the kids with the crappy parents have such an unlevel playing field from the onset, and that needs to be acknowledged.