Not true that you can't buy sugary cereals. The WIC approved list includes national and store brands of frosted shredded wheat. Besides, sugar is just another carbohydrate; most breakfast cereal is pure carb content.
The kids aren't getting fat on fruits and vegetables (fruit juice---maybe). WIC fraud is common; they're probably getting any kind of junk they want.
I agree that they're having kids to get more benefits.