Sheila is a welfare cheat.

Three hours a night she works at a bakery, sweeping floors and carrying trays, to earn $180 a month. That, added to the $280 the city gives her to feed, house and clothe herself and two teen-age daughters, brings her monthly income to $460. Of that money, $200 goes for rent on a two-bedroom apartment. Sheila guesses that she spends $150 a month at the Safeway; food stamps help to pay for $100 worth of the food. Medicaid picks up medical bills. Usually, Sheila and her two children have about $200 left after paying for rent and food. That $200 goes to pay for the gas, electric and phone bills, clothes, transportation, entertainment and furniture. Money gets tight.

"They want clothes," Sheila says of her children. "I don't want to have to tell them they can't go nowhere, so I have to give them bus fare. The TV broke down a while ago and we got that fixed. . . . For me the worse thing is I can't buy nothing for me to be pretty. . . ."

If sheila didn't cheat, she says, her 280 monthly welfare payment and $100 in food stamps would leave her with only $30 after she paid her rent and food bill.

The District government's 1981 budget includes a proposal to raise welfare payments by 5 percent beginning in October 1980, bringing District Welfare recipients to 77.5 percent of the government standard of living for February 1977. Since 1977, inflation has increased the cost of living in the city by 38 percent, according to the city auditor's office. As inflation goes up, the number of people below the poverty level appears to be going up too. The public school system recently reported that the number of school-children on welfare whose families have no other source of income to take them higher than the poverty level has increased by about 3,000 in the last year. This is not to say that the city government is indifferent to the problem. Last year over $9 million went to city welfare recipients.

But despite the huge outpouring of money from the city government, welfare does not seem to be accomplishing its goal: to give children food, shelter and clothing so they can have a fair chance to make a good begining in the world. In a growing number of cases, recipients of Aid to Families With Dependent Children, like Sheila, report that they have to cheat on welfare to make ends meet.

The city's Department of Human Resources recently found that 11 percent of its welfare recipients are suspected of cheating by working a job. Another 6 percent, according to DHR, are suspected of having lied so they could qualify for a bigger payment.

What should be done? The welfare system should be changed, for it leaves middle-class taxpayers, themselves fighting inflation, feeling that they are being abused by lazy welfare cheaters, while welfare recipients like Sheila feel neglected and forced to cheat the government to survive. A new emphasis for the city must be to get people off welfare instead of making less-than-poverty-level payments that only help to keep poor families in a welfare mentality -- alive to wait for more welfare.

First, there needs to be an increase in the city's welfare payments. Currently, the District ranks below Virginia and 24 other states in payments. The cost of the increased payments would not have to be fully borne by the city. The federal government pays one-half the cost and administration of welfare payments. In addition, other city programs, such as the current budget proposal for a million dollars in rent subsidies, could be channeled into welfare payments. The people who qualify for rent subsidies are welfare recipeints. Giving the poor more money through welfare would do more good than giving them rent subsidies, because the federal government picks up administrative cost and offers matching funds for every dollar the city puts in the program.

But the increase in welfare payments is not enough. More attention needs to be given to programs offering welfare supplements to people who are working. The idea would be to encourage welfare recipients to work and eventually to get off welfare. The Washington area does not have many unskilled jobs to offer untrained workers. But with welfare payments as an incentive, people could enter job-training programs or take low-paying jobs. Through the training program or a low-paying job, a welfare recipient could work himself off welfare.

That would be a welcome option to welfare cheaters like Sheila. Currently, of about 32,000 families who get Aid to Families with Dependent Children, less than 10 percent take part in the welfare supplements program for people who work. Women like Sheila could seek out jobs with potential as opposed to fearing that any job but a sneaky, forever-low-paying janitor's job, would disqualify them for welfare and not pay them as much as they get from welfare. According to the Department of Human Resouces, Sheila does not have to cheat even now, so long as she earns less than $285.65 a month

"I didn't know that," Sheila said when she was told about the program. "You lying?"?"