Oxfordshire County Council spent £25m in 2014-15 on direct payments to support about 1,770 social care users.
But an internal review has found "insufficient controls in place" to ensure money was not being misused.
Payments were spent on utility bills, household repairs, food and parents paying themselves high salaries.
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The report added: "The deputy director has confirmed these example items may not be relevant to meet assessed eligible need."
The  authority's website said direct payments were intended to pay for "a variety of care and support services".
It said: "Unless there are exceptional circumstances, you can't use the money to employ a close relative or person living in your home.
"You must not use your direct payment to pay for [...] items such as food, drinks, utilities, gifts or for other everyday items."
A report to the authority's Audit and Governance Committee said some expenditure had not been approved "but was not stopped nor recovered".
It added the current system "does not adequately clarify what is or isn't acceptable" and "does not require evidence to support payments".
"Finance queries had gone unanswered and also questionable expenditure not challenged," it said.
Labour councillor and committee member John Tanner said he would be pressing for more investigation into direct payments, because they were "wide open to abuse".
A council spokesman said investigations were continuing into the possible misuse of "a very small proportion" of the £25m budget.
He said steps would be taken to recover any misspent money and a new direct payment policy was being developed to make it clear how it should be used.
Last year, David Cameron wrote to council leader Ian Hudspeth and said he was "disappointed" at proposed cuts to Oxfordshire frontline services.
In response Mr Hudspeth said the council was trying to cope with £72m in funding cuts and increased demand for its services.
Money given to people to pay for their care was spent on items such as mobile phone bills and Apple computer equipment, a council audit has found.