Like Rick mentioned, where did the kids money go?  Was it spent on anything?  If the grandparents provided over half of the support of the grandkids and they lived there more than half of the year the grandparents should be able to claim them as dependents.  They would just need to make sure the kids  return is filed stating they are being claimed as a dependent on someone else's return.  The grandparents should also be able to claim their daughter as a qualifiying relative since she had no income and lived there the entire year and they supported her.