Tuesday, October 26, 2021

New Audit Shows ‘a Tragic Amount’ Misspent, But Can’t Find $40 Million in Welfare Funds

By Anna Wolfe


Mississippi Today

Mississippi Community Education Center and Families First for Mississippi in Hattiesburg, Feb. 21, 2020. Credit: Eric J. Shelton/Mississippi Today, Report For America

A long-anticipated independent audit of the Mississippi Department of Human Services meticulously describes some agency expenditures but provides little explanation of the misspending of tens of millions of welfare dollars in recent years.

Accountants from CliftonLarsonAllen LLC found a total of $12.4 million worth of possible fraud, waste or abuse, such as high-dollar contracts with vague responsibilities or a lease on a building that sat empty. It found $36.1 million in welfare purchases that weren’t allowed under federal rules, such as a virtual reality lab and sports camps. The firm could not account for another roughly $41 million.

Nancy New, a key figure awaiting trial in the alleged welfare embezzlement scheme, had suggested the forensic audit would vindicate her. 

But then she refused to cooperate with the audit, so the firm was unable to parse out what happened to $40.6 million her nonprofit spent.

The auditors did not determine whether any of these purchases — some of the most egregious and widely publicized in a scandal uncovered last year — constituted fraud, waste, or abuse, or whether they were even allowed under federal grant rules. 

Auditors deemed just $1.7 million, or 3%, of the New nonprofit’s spending “allowable,” meaning the purchases conformed to federal rules for welfare spending.

The state spent $2.1 million for the outside firm to conduct the audit of the welfare agency’s spending in 2016, 2017, 2018 and 2019 under its former director John Davis.

The report did not analyze payments from New’s nonprofit, Mississippi Community Education Center, to:

This latest report does offer more details surrounding $12.4 million in potential fraud, waste or abuse — most of which focused on how former Mississippi Department of Human Services director Davis used his influence to direct federal money to his friends and family. Because the accountants didn’t have access to Davis’ personal financial records, they could not determine whether he personally benefited from the scheme.

Some payments indicative of possible fraud, waste or abuse from the report include:

  • $5,101,710 to retired WWE wrestlers Ted DiBiase, Ted DiBiase Jr. and Brett DiBiase.
  • $1,112,285 to Brian and Austin Smith, Davis’ brother-in-law and nephew.
  • $168,733 to Nick Coughlin and $250,790 to Adam Such, individuals introduced to Davis by the DiBiases.
  • $1,309,183 to Victory Sports Foundation, owned by retired professional linebacker Paul Lacoste.
  • $26,962 for youth to travel to an out-of-state football tournament.
  • $200,000 to Soul City Hospitality, a public-private partnership represented by Jackson restaurateur Jeff Good.
  • $2,734 in first-class air fare for Davis and his former deputy Jacob Black.

In February of 2020, agents from the State Auditor’s Office arrested Nancy New, her son Zach New, Davis, retired wrestler Brett DiBiase, agency employee Latimer Smith, and nonprofit accountant Ann McGrew within an alleged scheme to embezzle a total of $4.15 million in federal grant dollars. Brett DiBiase is the only one who has pleaded guilty.

In May of 2020, the auditor released an audit that officially questioned more than $90 million in agency spending from 2017 to 2019 and involved dozens of subgrantees and individuals. 

But the revelation of a potentially much more massive scheme — and an ensuing FBI investigation — has resulted in no new arrests nearly a year and a half later.

“This independent forensic audit commissioned by DHS corroborates my team’s work over the last two years, and it shows what we have known for some time: there was a tragic amount of welfare money misspent here,” State Auditor Shad White said in a statement Friday. “The completion of the audit is an important step toward fixing the problems with how the state handled TANF money.”

Most of the money in question came from a block grant called Temporary Assistance for Needy Families (TANF), a few-strings-attached federal fund that states can use to provide cash assistance, formerly known as the welfare check, to very low-income families or on a number of other programs.

The Mississippi Department of Human Services had offered small contracts to New’s nonprofit and another nonprofit called Family Resource Center of North Mississippi over the years. But in 2017, the agency began funneling tens of millions to the two organizations under the guise of a family-stabilizing initiative called Families First for Mississippi. The two organizations then subgranted with dozens of other people and organizations but kept very poor track of the spending or what the recipients were supposed to be accomplishing.

Even though Family Resource Center and Mississippi Community Education Center were working on the same initiative, the nonprofits would swap funds and sometimes paid the same employees or contractors for the same work.

The forensic audit shows Family Resource Center made several of the purchases that were indicative of fraud, waste or abuse, including:

  • $375,750 to Chase Computer Services to build a program to track participants in Families First for Mississippi, an application that ultimately did not function.
  • $27,500 to Marcus Dupree, Families First for Mississippi “motivational speaker and celebrity endorser.”
  • $57,953 to Amy Harris, the nonprofit’s media coordinator.
  • $25,000 to Through the Fire Ministries, LLC for religious children’s books authored by Christian musician Jason Crabb.
  • $118,936 to Southtech Inc.
  • $30,000 to Northeast Mississippi Community College Development Foundation, a sponsorship for the Northeast Mississippi Football Coaches’ Association All-Star game.
  • $49,190.06 to Warren Washington Issaquena Sharkey Community Action Agency or WWISCAA for fabricated services, Mississippi Today first reported in June.

A large chunk of Family Resource Center’s misspending involved the New family or their companies, according to the report:

  • $2,137,436 to Mississippi Community Education Center.
  • $583,096 to New Learning Resources, Inc., Nancy New’s for-profit private school company.
  • $1,761 to Nancy New.
  • $57,456 to Zach New.
  • $34,506 to Nancy New’s other son Jess New.

While the overall Families First for Mississippi program was riddled with alleged corruption, the current criminal cases focus more on the money that mysteriously flowed through New’s nonprofit, Mississippi Community Education Center. New has maintained her innocence.

“The forensic audit is going to prove a lot,” Nancy New told reporters in November. “This has become a numbers case.”

The forensic audit states that attorneys for New’s nonprofit provided all the documentation the accountants requested, but that it contained errors.

When the firm followed up with the nonprofit representatives who would have direct knowledge of the finances — defendants Nancy New, Zach New and McGrew, the nonprofit accountant — they refused to meet with the auditors.

Zach New provided a written response to the firm stating, “MCEC disagrees with all of the MCEC-specific findings listed in the OSA report and welcomes the opportunity to discuss further any findings listed in the auditor’s report.”

But he never responded to the firm’s requests for such a discussion.

Attorneys for Nancy New, Zach New, McGrew and Davis did not return calls to Mississippi Today on Friday.

To determine how certain individuals came to be welfare recipients, the forensic auditors had greater access to internal records from its client, the Mississippi Department of Human Services — such as Davis’ emails — than it did to the private businesses that received subgrants.

“Based on the contents of email communications identified,” the report states, “it was apparent that John Davis had a very close relationship to the DiBiase family and may have had some control over the establishment of certain entities owned by the DiBiases.”

Davis had a hand in awarding direct agency contracts to Ted DiBiase Sr.’s Christian ministry Heart of David to conduct faith-based programming and to Brett DiBiase’s company Restore2 or Recover2 (the name alternates on agency documents) for opioid addiction education.

Ultimately, it was the $48,000 contract with Brett DiBiase, which the department paid him while he was in rehab in California, that landed the wrestler and Davis in jail.

But, the auditors found, Davis also played a role in securing contracts — much larger ones — between the nonprofits running Families First for Mississippi and Ted DiBiase Jr., or “Teddy.”

Davis frequently copied the DiBiases, especially Teddy, on emails discussing internal agency business.

“The inclusion of various DiBiase family members in emails regardless of their official role with the respective organization shows the fluidity of the relationships and the level of involvement of John Davis with Ted DiBiase, Ted DiBiase, Jr., and Brett DiBiase,” the report states.

The emails weave a tangled web: At one point, Davis even asked Nancy New’s son Jess New to help him find an available corporation name for Ted DiBiase Jr.’s new motivational speaking and leadership training venture called Law of 16. Much of the $3 million Ted DiBiase Jr. received in federal public assistance money was for “leadership outreach.”

In addition to Temporary Assistance for Needy Families funds, the $3 million Ted DiBiase Jr. received also included emergency food assistance money and funds from another federal program called the Social Services Block Grant.

The audit states that in 2017, Brett DiBiase introduced Davis to Nick Coughlin, who co-owned a company and attempted to produce a movie with Ted DiBiase Jr. Davis immediately began discussing a role for Coughlin at the agency, in which he would “create opportunities for conversations with industry leaders and potential employers for indiviudals [sic] seeking [MDHS] services.”

Coughlin’s company NCC Ventures received a total of $168,733 in payments from the agency and each of the nonprofits.

“Based on the lack of any deliverables from NCC Ventures and the limited information included in the invoices to MDHS, there is little evidence to support any time and effort by NCC Ventures to perform the services as described in the agreement,” the audit states.

Davis then also hired one of Coughlin’s relatives in the state office. Coughlin now works for the Mississippi Attorney General’s Office, according to his LinkedIn.

Coughlin’s attorney, Francis Springer, advised Coughlin not to discuss his work with the welfare department since the criminal investigation is ongoing. Springer said he didn’t believe Coughlin was under investigation.

“As far as I know it was all legitimate work and was verified by the auditor’s office,” Springer said.

Similarly, Ted DiBiase Jr. introduced Davis to consultant Adam Such, whose firm SBGI, LLC then received a contract and an up-front payment of $250,000 from Family Resource Center. While the contract was initially intended for programs to help at-risk youth, Family Resource Center told auditors “the scope as intended concept was not feasible,” so the nonprofit gave him an administrative role.

“Although there is some evidence of activities performed by Such, there is limited information to support a fee of $250,000,” the audit reads.

Mississippi Today could not reach Such on Friday.

Overall, auditors could only determine that $49.4 million, 40% of the $126 million in welfare spending they examined, was allowable.

Because the agency was skirting rules under the Temporary Assistance for Needy Families program, it’s possible that some legitimate organizations running necessary programs in accordance with their agency subgrant also made unallowable purchases if the subgrant agreement they signed with the department did not follow welfare guidelines.

When the Mississippi Department of Human Services hired CliftonLarsonAllen in September of 2020, it said in a press release, “The audit will provide a complete review of the agency’s practices and ensure it is operating with integrity and in compliance with departmental policies and state and federal laws.”

An agency spokesperson said an additional report on the agency’s current operations and internal controls will be released in coming weeks. The latest reports published Friday “look back, while the controls report will look forward.”


This article first appeared on Mississippi Today and is republished here under a Creative Commons license.

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