Unused funds can be put in 529 Plan or savings. 

You don't charge the kids for their food or housing. However, if there are 4 people in the house it would be reasonable to say that 1/4 of the cost of the groceries is spent on each child. And 1/4 of the rent, utilities, mortgage payment for each.

Bottom line, Rep needs to show the money was spent on or for the kids.

If the kids have other income, their SS benefits could be up to 85% taxable just like they are for anyone else.

I would think the SSA website has guidance on this.