The first thing I would do is go absolutely NUTS.
Fly off the handle? Good God, he wouldn't have a chance to get near the handle - he'd be on the floor with the shock of the blast coming from me (that might be a part of the problem - if your MO has been nice, careful, gentle... he's taken total advantage of that, in the desperately cunning and manipulative way people who are afraid do).
The second thing I would do is insist on control of the finances, or separation immediately. (Yes. That shocking. He NEEDS a shock).
The third thing I would do is give him a copy of Toxic Parents and tell him to read it.
The fourth thing I would do is sit him down and tell him, very clearly, that this is the end. That he has now made it clear that he sees his nasty, bullying, scrounging parents as more his family and more central and important to his life than you and your children. That can't continue, so his options now are to either agree to separation, or separate from his parents. How you do that is up for discussion, but personally, if you feel you're up to the fight, yes I probably would go and see them, spell out exactly how your DH feels, to the point of being sick, frightened etc., how it's damaged your relationship, how him defrauding the family to give them money behind your back is the last straw... and how you are from now on drawing up boundaries, and if they don't like it, tough. Yes they can blame you, they're quite welcome to.
Grab this chance, basically. Make this a crunch point, because if you don't, this will continue, and erode your relationship and so-called 'family' until nothing is left... and you split anyway when the children are adult and there's nothing to hold you together. By that time, you'll have zero respect for him. Oh and if you seriously think there's a chance he'll rip you and your kids off even more by bailing them out on a bigger scale, then separating finances now could save your bacon.