What would you do if a friend was misusing government assistance?

One of my closest friends of about 5 years made the choice to become a single mother a year ago. She utilized some government financial assistance to help pay for medical care and food. My personal belief is that those programs are excellent resources for people who need them.

I know for a fact that she is spending money on electronics (for both herself and the baby. What 1 year old doesn’t need an ipod?), DVD collections for the kid, and the kicker- the baby recently gave her an expensive piece of jewelery (and clearly, the baby doesn’t have income. She bought it for herself).

I’m feeling torn. I love my friend, and was even at the baby’s birth. I’ve been pulling myself away from her lately because I have a gut-level reaction to what she’s doing. I’m sure she realizes my absence in her and her child’s life, but hasn’t said anything and she’s busy being a new mom.

On one hand, I tell myself that her financial choices are none of my business, although I’m a tax-payer. On the other hand, I feel like I’m realizing her behavior is sleazy and I try not to surround myself with sleazy people. I’ve only talked to one person about this, and he’s essentially written her off as a friend.

What would you do and how would you feel?