Abstract From the 1990s onwards, fraud detection has become an increasingly important focus in the design and implementation of a variety of welfare schemes, including unemployment benefits, social assistance benefits, pensions, and personal care budgets. This culminated in the 2014 Fraud Act, which introduced a system of high sanction in all cases of benefit fraud, even if they were causes by administrative errors. In 2020 a parliamentary investigation committee concluded that the Dutch government had violated the foundational principles of the rule of law through the way suspected fraudsters with childcare allowances had been treated. This so‐called Childcare allowances affair undermined the support for the harsh approach to fraud and led to a series of proposals to reform the Dutch ‘surveillance welfare state’. The Dutch Childcare allowances affair is an interesting case of a social policy crisis because its origins are not external events but lie in the regular implementation of policies that have been approved and supported rather widely by politicians, policymakers and street‐level bureaucrats. In this article, we define and apply the concept ‘institutional implosion’ to analyse the Childcare allowances affair and its consequences. Moreover, we argue that the implosion in this affair follows from an extension of the target group from ‘non‐deserving’ to ‘deserving’ citizens. Whereas the Fraud Act primarily was aimed towards recipients of unemployment, disability and social assistance benefits, a change in the system of childcare allowances extended the scope of the Fraud Act to an almost universal group of parents that use childcare facilities.