Debit cards issued to provide assistance to welfare recipients were used to withdraw cash at ATMs in strip clubs, casinos, bingo halls and amusement parks, a 9News investigation found.
As a result, more than $1 million in welfare funds goes to ATM owners and banks through transaction fees every year.
At strip clubs, where transactions are not banned by state law, 9News found numerous transactions, including 14 at Shotgun Willie's in Glendale for a combined amount of $1,500.
Taxpayers also covered the $6.50 ATM fee for each withdrawal.
Out of the 222,000 transactions reviewed by 9News, 80 percent occurred at ATMs that applied a fee to accounts, resulting in about $540,000 in fees.
A new federal law signed by President Barack Obama on Wednesday will force states to ban all such transactions within the next two years or face losing federal funding.