MDHS Embezzlement Part 1: Charges and evidence

NEMiss.news MDHS embezzlement Nancy New, John Davis, Phil Bryant, Cindy Hyde-Smith
Nancy New (left) and former MDHS Executive Director John Davis (third from left) who were arrested and charged in the MDHS embezzlement scandal , seen here with "whistleblower" former Mississippi Gov. Phil Bryant (second from right) who often appeared with New at events for her DHS-funded programs, including Families First for Mississippi. U.S. Senator Cindy Hyde-Smith (right). one of the many top state Republicans who received funds from Nancy New.The men second and fourth from left are not part of this story. Photo Families First for Mississippi Facebook page

Editor’s Note: This is Part 1 of a three part series NEMISS.NEWS will publish regarding the matter the state auditor has called the biggest embezzlement of public funds in Mississippi history. Several people were arrested and charged on Feb. 5, 2020. The money was stolen from TANF funds, federal money entrusted to the state for needs of the poor. Because of the magnitude of the theft and the fact that it was tantamount to stealing from the poor box, the story became the source of considerable public outrage. Then the coronavirus pandemic knocked the embezzlement story out of the news. With the state “opening up” the case is again becoming a focus of concern. Part 1 of the series covers the comprehensive audit of the Mississippi Department of Human Services, which State Auditor Shad White’s staff completed while most attention was on the COVID-10 epidemic, Parts 2 and 3, to be published Monday and Tuesday, June 1 and 2, will give background on the state officials and others touched by the scandal and the implications for the taxpayers of Mississippi.

In yet another black eye for Mississippi, the State Auditor has revealed a far-reaching and complicated story of astonishing proportion and audacity. The April 22, 2020, auditor’s report of Mississippi’s Department of Human Services (MDHS) amounts to a 104-page guide on how to misuse 94 million dollars of federal funds.

The list of victims in this embezzlement scheme is long. First, there are United States taxpayers from all 50 states, who provided the funds to Mississippi. Second, there’s the hoodwinked Mississippi voters  who elected and/or paid those responsible for actually spending the funds or for vouchsafing their proper use. Third, and most importantly, are the money’s intended beneficiaries, Mississippi’s “welfare” recipients -the nation’s most needy people, by most any standard you care to name.

MDHS officials, claiming to be trailblazers in “re-imagining” the effective use of federal funds, did, indeed, show off their formidable talents.  Auditors believe over 94 million dollars were stolen, diverted or grossly mismanaged.

Very little of the money is likely to be recovered. The federal government has already said that Mississippi will be required to replace the misspent funds with its “own” money. Heads-up, taxpayers…this means YOU!

NEMiss.news Shadrack White, MS State Auditor

MS State Auditor, Shadrack White

What is included in this post

This post includes:

  • a key to the abbreviations used in the auditor’s report
  • a section by section breakdown and summary of the report, which includes the corresponding page number for the beginning of each section in the PDF. Readers interested in the detailed findings can scroll down the PDF to the spedified page.
  • an attached PDF document which contains:
    • the auditor’s cover letter, then the Audit Findings, including:
    • statements of parties’ responsibilities, audit procedures, internal compliance controls, findings & recommendation summary
    • Pages 11-70, individual audit sections, which begin with a detailed listing of laws and regulations applicable to that section, then list detailed exceptions found and their questioned costs
    • Summary findings of abuse in individual federal funding channels (SNAP, Community College Board, CCDF, etc) as to individual federal codes and regulations violated. Including cause of problem, effect of problem. responsible officials, etc. Also recommendations of changes necessary to prevent abuse of federal money.

 

KEY TO ABBREVIATIONS

BD: Brett DiBiase

CCDF: Child Care Development Fund

CF: Christopher Freeze

FRC: Family Resources Center

HOD: Heart of David Ministries

JB: Jacob Black

JD: John Davis

JN: Jess New

MCCB: MS Community College Board

MCEC: MS Community Education Center

MD: Marcus Dupree

MDHS: MS Department of Human Services

NLR: New Learning Resources, Inc.

NN: Nancy New

NSA: New Summit Academy

NSS: New Summit School

PV: Priceless Ventures, LLC

SNAP: Supplemental Nutrition Assistance Program

SSBG: Social Services Block Grant

TANF: Temporary Assistance for Needy Families

TD: Ted DiBiase

ZN: Zack New

 

Pg 11  Personal Benefit Contracts/Related party Contracts

  • MCEC awarded contracts for services to members of Executive Director John Davis’s immediate family, including a company owned by his brother-in-law and his nephew.
  • FRC awarded contracts and employed the same individuals as MCEC above.
NEMiss.news John Davis arrest MDHC embezzlement

John Davis, former MDHS Executive Director, arrested and charged.

Total amount paid to JD’s brother-in-law – $608,650
Total amount paid to JD’s nephew – $492,499
Total amount questioned in 2017 – $50,173
Total amount questioned in 2018 – $233,452
Total amount questioned in 2019 – $723,924
Total amount questioned in 2019 – $93,600 (CCDF)

 

Page 14 Government Relations/Lobbyists

MCEC entered into multiple contractual agreements with consulting firms in order to maintain governmental revenue streams or to lobby on behalf of their organization, the Families First Initiative, or MDHS.

MCEC entered multiple contracts with AvanteGarde strategies, Inside Capital, Lucas Compton, in which auditors were able to determine the following unallowable lobbying contracts: 

 FRC contracted with Lucas Compton

Total amount questioned in 2017 – $14,000
Total amount questioned in 2018 – $270,325
Total amount questioned in 2019 – $211,000

 

Pages 15 Consulting

MCEC entered into multiple contractual agreements with consulting firms on behalf of their organization, the Families First Initiative, or MDHS. These consulting contracts were often for duplicative services for overlapping time periods and were for large sums of money.

Stephen Group, Consultant 1, Consultant 2, NCC Ventures, Institute of Project Management

FRC entered into contractual agreements with the same consulting organizations as MCEC, and with CG Consulting.

MDHS also entered into a consulting contract with NCC Ventures.

NEMiss.news

July 2019: Brett Favre, Tate Reeves and Phil Bryant in a photo Reeves posted on Facebook

Total amount questioned in 2018 – $407,718
Total amount questioned in 2019 – $299,476

 

Pages 17 Payments for Sports/Coaches/Sporting Celebrities

MCEC expended federal grant monies to fund multiple sports programs. MCEC could not provide any Documentation supporting the correlation of these sports programs to any of the four tenets of TANF:

  • Favre Enterprises was contracted to appear at several events, record promotions, and provide autographs for marketing materials from July 1, 2017 through July 31, 2018. the entire payment of $1,100,000 paid in FY 2018 is questioned.
  • Rick Rigsby Communications was paid $52,100 for motivational speaking in April 2019.
  • Diamond Design and Construction was paid $42,750 in FY 2019 to convert and line Field 8 for the North Jackson Youth Baseball League. The field is located next to New Summit School, the school owned and operated by the Director of MCEC (NN). According to inquiry, Field 8 was often utilized as a baseball field for New Summit Academy.
  • North Jackson Youth Baseball was paid $65,000 in FY 2017 to rent baseball fields. The spouse of one of the principals at MCEC (JN) is currently on the Board of Directors of the baseball organization.
  • P360 Performance Sports was contracted to allow four Jackson schools to use the baseball fields for practice and training. However, based on inquiry with the vendor, these amounts also allowed for a specialty, private team (Mississippi Bombers) to use the field, thereby making at least a portion of the payments unallowable, due to lack of ability to verify that the payments were for needy individuals.
  • Overtime Sports was paid 37,500 for a sponsorship of a college tournament in FY 2019.
NEMiss.news Christi Webb Exec Director Family Resources Center, Tupelo MS

Christi Webb Exec Director Family Resources Center (FRC), Tupelo MS

FRC expended federal grant monies to fund multiple sports programs. FRC could not provide any documentation supporting the correlation of these sports programs to any of the four tenets of TANF:

  • Metro Area Community Empowerment Foundation (MACE) was contracted for $75,000
  • Bigger than Ball Foundation, Inc. was contracted to produce “Bigger than Ball Moments”
  • Retired Pro Football Players Charitable Foundation, Inc. was contracted for $75,000 to hold three (3) football camps for youth.
  • Northeast Mississippi Football Coaches Association (NEMFCA) was paid $30,000 in FY 2019 for a sponsorship of the NEMFCA All-Star game.

Total amount questioned in 2017 – $65,000
Total amount questioned in 2018 – $1,233,975
Total amount questioned in 2019 – $313,539

 

Pages 21 Payments Directed by Former Executive Director

NEMiss.news Ted DiBiase, Jr. MDHS embezzlement

Ted DiBiase Jr.

Both MCEC and FRC often utilized the same contractors and awarded grants to common subgrantees. In some instances, joint contracts were issued under the “Families First” name, and in other instances, contracts were issued by both entities for the same scope and time period. Based on inquiry with the subgrantees and a review of documentation at MDHS, auditors determined that former Executive Director John Davis often directed MCEC and FRC to award contracts and grants to certain people or organizations.

  • Priceless Ventures, LLC and Familiae Orientem, LLC (Ted DiBiase, JR is an owner of both)– contract included Priceless Ventures, LLC and its owner serving as “Leadership Outreach Coordinator” for the Families First Initiative cofounded by MCEC, FRC and MDHS.
    • MCEC awarded additional contracts to Priceless Ventures, LLC and its owner for leadership development and the administration of a selfhelp program called “Law of 16.”
    • FRC also awarded contracts to PV from May 15, 2018 to September 30, 2018 in the amount of $500,000.
    • FRC also contracted with Familiae Orientem, LLC to conduct strategic development on the “Rise” program.
  • NEMiss.news MDHS scandal Ted DiBiase

    Ted DiBiase, Heart of David Ministries

    Heart of David Ministries (HOD) (founded by Ted DiBiase)– MCEC donated $25,000 to HOD in two separate  transactions. These payments were coded as a “sponsorship” and “contribution.”

  • Lobaki Foundation – A joint contract between MCEC, FRC and the Lobaki Foundation (Lobaki) was structured under the name of “Families First of Mississippi” from September 1, 2018 through August 30, 2019. When members of FRC staff noted they had questions about the project, JD told FRC that he had spoken with Lobaki, and that there was no need to discuss the contract further. Additionally, auditors were presented with an email from Executive Director JD informing Lobaki that he would instruct “Families First” to wire transfer money to the Lobaki account, and apologized the payments had been stalled.
  • Micah’s Mission School, Inc. – A joint contract between MCEC, FRC
  • Victory Sports Foundation – MCEC entered into a contract with Victory Sports Foundation
  • Fitness Program – FRC entered into a contract with an individual.
  • SBGI, LLC – SBGI was contracted by FRC
  • Restore2/Recover2 – MDHS entered into a contract with Recover2, LLC, which was owned by Brett DiBiase. The contract amount was for $48,000 and included 24 “sessions” of opioid training over the six-month period.
    • The principal of Restore2, Brett DiBiase, who supposedly conducted the trainings was in a luxury rehabilitation facility in Malibu, CA at the time of the contract.
    • The Executive Director John Davis – who visited the rehabilitation facility during the contract period, was aware the trainings did not take place, and was involved in a conspiracy to circumvent controls regarding these payments.ts are questioned due to the direct involvement of MDHS.
    • Other MDHS employees reported suspicions about this individual’s contract to those charged with governance, who then alerted OSA to the possibility of fraud.
  • NEMiss.news Brett DiBiase arrested in MDHS scandal

    Brett DiBiase, arrested and charged in MDHS embezzlement, allegedly had drug rehab paid by tax dollars.

    Rise in Malibu – Rise in Malibu (Rise) is a luxury rehabilitation clinic
    located in Malibu, CA.

    • The owner of Restore2 (BD), who was a former employee of MDHS, and Executive Director John Davis conspired to send Brett DiBiase to the facility for a four- month treatment due to his addiction to narcotics.
    • While there, Brett DiBiase was under contract to conduct opioid addiction training classes to MDHS staff, as well as employed by MCEC.

Total amount questioned in 2018 – $2,858,820
Total amount questioned in 2019 – $3,005,427

page 29 Curriculum

  • ActiveEd, Inc. – A joint Memorandum of Understanding (MOU) between MCEC, FRC and ActiveEd was structured under the name of “Families First of Mississippi”
  • Houghton Mifflin Harcourt – MCEC purchased $117,703 of “curriculum” from Houghton Mifflin Harcourt during fiscal year 2019. The funds were coded to “Curriculum Expense” in the general ledger.
    • review of actual invoices indicated that the curriculum purchased was used for the private school associated with MCEC, and not for the community at large.
  • Edmentum, Inc. – MCEC purchased $133,016 of “curriculum” from Edmentum during fiscal year 2019.
    • Auditor could not verify that purchases were made for curriculum for the community at large and not the private school associated with MCEC.
    • Total amount questioned in 2019 – $500,719

 

Page 31 Donations/Gifts/Sponsorships 

  • University of Southern Mississippi Athletic Foundation – In October 2017, MCEC signed a “sublease” with the University of Southern Mississippi Athletic Foundation for $5,000,000 as “lease prepayments” for rental of a multi-purpose wellness center on the University’s campus.
    • When the lease from USM Athletic Foundation was viewed under scrutiny, auditors determined that the substance of the $5,000,000 payment to USM is a donation to the USM Athletic Foundation for the construction of the Wellness Center and not a lease of the property.
  • American Heart Association – MCEC funded various programs
  • The Library Foundation of Madison – MCEC donated $35,000 for a bookmobile/digital lab project
  • MCEC contracted and paid Fannin Fabrication Company $28,186 to build a “Rollover Simulator,” which was donated to the MS Highway Patrol.
  • Mississippi Military Family Relief Fund – MCEC donated $10,000 to the fund in FY 2019.
  • MCEC paid $38,737 in small donations/sponsorships to various Booster Clubs, races, foundations, student activity clubs, etc. during FY 2019.
  • FRC paid $16,680 in small donations/sponsorships to various Booster Clubs, pageants, student activity clubs during FY 2019

Total amount questioned in 2017 – $35,000
Total amount questioned in 2018 – $5,085,593
Total amount questioned in 2019 – $106,510  

Page 35  Publications

Bay View Funding/M&W Publishing (Bay View) MCEC entered into a four-year commitment with Bay View to purchase copies of the book “Professional Grammar Simplified” in order to market and sell the book to organizations to whom MCEC was affiliated.

  • After a legal dispute, unsold copies were returned.
  • Due to the unreasonable nature of the expenditure, the intent to profit from the sale of the book in violation of Program Income regulations, and the lack of any direct correlation to TANF, $905,000 is questioned
  • Legal fees for dispute are also questioned.

Eli’s Christmas – MCEC purchased 2,600 copies of the children’s book in January 2019 using funds from the Mississippi CommunityCollege Board (MCCB) grant.

  • The author of the children’s book, B. J. May, is also related to the principal and owner of Restore2, LLC, Brett DiBiase.
  • Scope of the projects does not include providing books to children, nor do the agreements make any correlation to the eligibility requirements of CCDF.
NEMiss.news MDHS Scandal Marcus Dupree

Marcus Dupree, whose home was allegedly bought with tax dollars.

Total amount questioned in 2019 – $960,176

 

Page 36  Purchases of Real Property/Construction/Assets

Marcus Dupree (MD) Foundation – MCEC entered into an agreement with MD
Foundation for a sum of $371,000 on January 1, 2018 for “Equine
Assisted Learning” and “Equine Assisted Activities”.

  • On February 26, 2018, the owner of MD Foundation was paid $171,000. The transaction is classified as “Rent” in the underlying accounting records. MCEC paid an additional $200,000 directly to the bank that holds the note on the residence. MCEC also guaranteed the residence through the bank with a six-year lease from April 1, 2018 through March 31, 2024 that essentially paid the mortgage.
  • The agreement does not have an expiration date and does not specify who the services will benefit.
  • Marcus Dupree was also employed by MCEC from July 17, 2017 until September 30, 2019 at an ending annual salary of $130,000.
  • According to the Guaranty, which was signed by Nancy New, the MCEC Board of Directors approved the Guaranty at a Board Meeting held on April 13, 2018. There was no record found of the board meeting and MCEC later confirmed that therre had been no meeting.
  • There were indications that MCEC edited the general ledgers before supplying them to auditors, indications that TANF money paid a $171,000 downpayment on an $855,000 home in Flora, MS.

Both MCEC and FRC purchased items that meet the thresholds in the MDHS Subgrantee Manual for inclusion on the “Physical Property Inventory” and did not report these items to MDHS, as required by subgrant requirements. These items included cell phones, televisions, equipment, etc.

  • MCEC purchased three vehicles using MDHS grants funds.  Also, maintenance contracts, repairs, and other costs associated with the vehicles.
    • These vehicles were treated as the primary vehicles for the Director of MCEC (Nancy New), the Assistant Executive Director of MCEC (Zack New) and the son of the Director of MCEC (Jess New).
    • Additional items were purchased with TANF funds, though there was no proper documentation/cost allocaton.
  • FRC purchased two vehicles for a total of over $78,000. TANF funds paid the complete cost; though vehicles were not used exclusively for TANF purposes.
    • Additional items were purchased with TANF funds, though there was no proper documentation/cost allocaton.

Total amount questioned in 2018 – $433,940
Total amount questioned in 2019 – $401,768

 

Page 42  Faith-Based Initiatives/Concerts

Both MCEC and FRC funded concerts of a faith-based, evangelical worship singer in FY 2018 and FY 2019. Payments were made to the singer individually and the organization “Through The Fire Ministries.” The singer performed at rallies and performed concerts in churches in Mississippi. Auditors did not have a copy of the contracts associated with the payments.

MCEC contracted with Sonshine Leadership, LLC to develop faith-based coalitions. One of the stated activities of the agreement was to “develop a prayer team for Mayors”

Total amount questioned in 2018 – $1,050
Total amount questioned in 2019 – $245,959

 

Page 43  Marketing/Branding/Advertising/Promotional Materials

Under the “Families First” initiative, MCEC and MDHS were provided branding, public relations, print media and advertising from the Cirlot Agency.

  • The Auditor was not provided a contract for these services, but was provided a “Families First for Mississippi Financial Update” from November 2019 that detailed the scope of work performed for MDHS, Family First Initiative and Families First Mississippi.
    • Complete with billing errors and math errors the “update” stated that Cirlot Agency stated had billed hat $1,199,310 for services.
    • These transactions included a verbal “promise to pay” from Executive Director JD. MDHS. Under the subsequent Executive Director (Christopher Freeze), the reimbursement request was denied. However, MCEC still used TANF funds to pay for the services.

MCEC entered into contractual agreements to advertise and sponsor NCAA college sporting events at Mississippi State University.

  • Advertisements were at college football, basketball, and baseball games. In addition, advertising was also done for NCAA Final Four Championships and Bowl Games held out of state.

MCEC and FRC entered into contractual agreements to advertise with radio stations owned by Telesouth Communications.

Both MCEC and FRC utilized iPromoteU to provide promotional gifts and “swag” for conferences, booths, etc.

Costs were generally questioned due to the unreasonable cost of the advertising, lack of adherence to stipulations in the grant agreement, inability to allocate costs of allowable and
unallowable payments, and the lack of any correlation to how the advertising benefited the programmatic nature of the TANF program.

Total amount questioned in 2017 – $327,336
Total amount questioned in 2018 – $774,194
Total amount questioned in 2019 – $1,774,489

 

Page 47  Second Tier Subrecipients/Programmatic Subgrants

Both MCEC and FRC awarded subgrants to “second tier subrecipients” during the grant period.

  • The majority of subgrantees of MCEC and FRC were not appropriately monitored,
  • Most of the subgrant “packets” examined did not contain any type of correlation to the federal award objectives, nor did they contain client attendance records or documentation of the services provided.
  • Many of the projects funded with appropriate scopes appeared to have performed work; however, documentation supporting that work was not sufficient for auditor to determine if it met the requirements to be allowable under the federal award.
    • Grants went to Bellhaven University, Delta State University, Meridian Community College, Mississippi Gulf Coast Community College, Pearl River Community College, Picayune School District
    • Juanita Sims Doty Foundation – Granted $1,000,000 over a two year period. Scope unknown. Actual payments in FY 2018 totaled $688,864; and $368,291 in FY 2019.
    • About a dozen other community, civic and religious organizations.

FRC Subgrantee agreements did contain scopes and/or project descriptions; however, some items in project scopes did not comply with allowable cost provisions.

    • Questioned grants went to:
    • Baldwyn School District, Mississippi State University, Nettleton School District,
    • Autism Center of North Mississippi, Children’s Advocacy Center, Regional Rehabilitation Center, Southeast Mississippi Children’s Advocacy Center
    • Kelly Williams Ministries, Prentiss County Library, Reviving Network, Robinson Resource Center

Total amount questioned in 2018 – $3,161,248
Total amount questioned in 2019 – $3,319,311

 

Page 51  Personal Benefit/Conversion to Private Use

During the course of the audit, auditors became aware that MCEC was under investigation for the misuse of state and federal monies. Auditor noted the following instances of alleged conversion of assets to personal use:

NEMiss.news Nancy New and Zack New arrested in MDHS embezzlement

Nancy New and her son Zack New were arrested and charged in MDHS embezzlement scheme

Alleged personal use of the News:

  • From a period of January 1, 2016 to June 30, 2019, MCEC transferred/paid a total of $6,513,393 in monies directly to the private business New Learning Resources, Inc. (NLR) which is owned and operated by the
    Director (NN) and Assistant Executive Director (ZN) of MCEC.

    • Funds traveled between the two entities via a variety of accounting transactions. allegedly to conceal money transfers to NLR. For example, in one instance the financial records show a payment to NLR on 01/08/2019 for $1,125 forcatering of Highway Patrol meals; however, the same entry on the general ledger provided to auditors shows the payee of this transaction to be “Robert’s Catering.” In fact, any payments to NLR other than a $700,000 grant payment had been artificially removed from the general ledger provided to auditors.
    • After analyzing the transfers and transactions in the ledger, auditor questioned the payments to NLR that were not offset by credits.
  • MCEC’s Director and Assistant Executive Director entered into a contract, in their personal capacities, for
    $1,700,000 with the medical company, Prevacus, to purchase an investment in Prevacus and its affiliate PreSolMD.

    • Original entries in the general ledger show that the payments were made with TANF funds; however, after State Auditor Investigators questioned the use of TANF funds in July 2019, the funding source was changed to “Bingo” in the accounting software. [ A bingo operation was a source of fundraising for MCEC.]
  • MCEC paid Magnolia Strategies, LLC, a company owned by the Director of MCEC’s son (Jess New) $250,000 in “consulting” fees.
  • MCEC used TANF funds to  purchase kitchen equipment and for the cafeteria of NSS, as well as for computers.
  • Via contracts with University of Southern Mississippi (USM) for “externships,”  which were, in fact, completed at NSS, MCEC used TANF funds to provide temporary workers for their personal business.
  • Assistant Executive Director of MCEC (ZN) borrowed $28,898 against the balance of his 403(b) pension plan and allegedly used TANF funds to repay the loan.
    • A variety of deliberate mislabeling of coding and incorrect billing procedures were utilized to conceal these various unallowable transactions.

Total amount questioned in 2017 – $1,489
Total amount questioned in 2018 – $1,256,148
Total amount questioned in 2019 – $2,518,640

 

 Page 55  Related Party Rent and Idle Facilities

MCEC is owned and operated by the Director, and her son, the Assistant Executive Director. Together, they also own Avalon Holdings,LLC (Avalon). The Director’s other son owns and operates 204 Key, LLC (Key). Both Avalon and Key own properties that are utilized by MCEC as places of business. Avalon owns three separate buildings that are utilized by MCEC; Key owns one.

  • For space that is deemed to have a rental value of $12,460 per month, MCEC paid $27,166 monthly to Avalon, a family owned real estate business.
  • Rent was paid by MCEC for a building near the MCEC headquarters. The building was said to be rented for the use of Families First. However, it was actually utilized by the 4th grade classes at NSS, and is the location of the “Spectrum Academy” location inside NSS. Both NSS and Spectrum Academy are privately owned by the Director of MCEC and her family.
  • MCEC overpaid by $73,086 per year for property in Greenwood, MS utilized as a “Families First Resource Center.”
  • MCEC paid monthly rental payments of $3,500 to Key for property located in Madison, MS, supposedly for another “Families First Resource Center.” Mississippi Dyslexia Center, owned by the New family, was the only actual occupant of the building.
  • MCEC paid $20,274 per month with TANF funds to rent property in Jackson, MS said to be for a “virtual reality school” run by the Lobaki Foundation, although the school contract had ended. Auditors question $669,237 for this rental.

Total amount questioned in 2019 –$1,126,408

 

page 58  Travel for Specific Individuals 

Priceless Ventures, LLC travel – The owner and operator of Priceless
Ventures (TD) was reimbursed for travel from MCEC. The contracts with
MCEC state that the contract price is all inclusive and do not detail policies
for travel reimbursement. For fiscal year 2019, MCEC reimbursed $12,872 to TD for travel.

BD travel – Aside from being the owner and operator of Restore2, LLC, BD was also employed by MCEC from July 1, 2018 to June 30, 2019.  Travel for him and his wife are questioned.

Total amount questioned in 2019 –$46,294

 

Page 59  Salaries

At MCEC, auditors requested a list of employees and their salaries. MCEC provided a list; however, the list did not contain job descriptions. Auditors then requested for the job descriptions to be added to the list. When auditors received the revised list with job descriptions, auditors compared the two lists and found that five employees on
the first list were not on the second list, and some of the salary amounts changed.

Two of the employees that were no longer listed were the daughters-in-law of the Director of MCEC (NN) – the Assistant Executive Director’s (ZN) wife, and the wife of NN’s other son, JN. Two of the other employees that were no longer listed were attorneys who also are employees at FRC, one of which was previously the Deputy Executive Director of MDHS under Executive Director JD and the other is the niece of the Executive Director of FRC.

Auditors determined that there were several employees on MCEC’s payroll who were also listed as staff of New Summit School (NSS – owned by NN), Mississippi Dyslexia Center (owned by JN and ZN), and Spectrum Academy (owned by JN). The salaries of the employees identified were approximately $339,000 in FY 2017, $860,000 in FY 2018, and $944,000 in FY 2019.

Brett DiBiase’s job description, as listed by MCEC, was “Trainer.” The average salary of all of the other employees with the “Trainer” job description was approximately $28,000. However, BD was receiving an annual salary of $250,000.

Total amount questioned in 2017 – $5,840,046
Total amount questioned in 2018 – $13,202,040
Total amount questioned in 2019 – $15,296,505

 

page 62 All Other Costs from MCEC Sampled 

Auditors sampled and tested all other expense classes at MCEC for adherence to Uniform Grant Guidance allowability regulations. MCEC did not have an appropriate or auditable underlying methodology for allocating shared costs among multiple grants. Findings included:

  •  Awards, Banquets, and Events :     Questioned Cost for fiscal year 2019 – $69,136
  •  Contract Labor:     Questioned Cost for fiscal year 2019 – $71,718
  •  Curriculum:   Questioned Cost for fiscal year 2019 – $15,750
  • Telephones:    Questioned Cost for fiscal year 2019 – $61,389
    • Telephone – While reviewing invoices, auditors noted the following:
      MCEC is paying a portion of each employees’ phone bill;  The fringe benefit is applied to all employees regardless of need in regards to TANF purposes. Additionally, it was noted that MCEC is also paying 100 percent of the phone bill for employees who are either not employed by MCEC, do not work full time for MCEC, or work for New Summit School or New Learning Resource center parttime.
    • iPhones and iPad devices for NN (iPhone, iPad, and data for each), ZN (iPhone, two iPads, and data
      for each), ZN’s wife (iPhone and data), JN (iPhone and data), and JN’s wife (iPhone and data). MCEC was also paying monthly installments on two phones and for the iPhone data for the owner of Priceless Ventures, TD.
    • Invoices also show that some employees’ are having their spouses and children’s phones, service, and iPhone data paid for usingTANF funds – including the IT Director of MCEC’s (BB) own phone and data, his son’s data, and his daughter’s phone and data.
  • Many other sampled categories found unacceptable accounting and/or procedures

Total amount questioned in 2019 –$329,427

 

Page 68 All Other Costs from FRC Sampled

 

[Generally the same type items looked at as MCEC above]

Auditors sampled and tested all other expense classes at FRC for adherence to Uniform Grant Guidance allowability regulations. During testing, auditors noted that FRC did not have an appropriate or auditable underlying methodology for allocating shared costs among multiple grants

Total amount questioned in 2019 –$133,015

 

 

SUMMATION OF FINDINGS AND QUESTIONED CHARGES

 

Due to the widespread fraud, waste, and abuse uncovered during the audit, and the lack of any appropriate underlying methodology for the allocation of shared costs in both MCEC and FRC, the overall lack of documentation to establish reasonableness and necessity of costs, the lack of integrity in documents obtained from MCEC due to known instances of forgery, misdirection, document modification, etc., the direct involvement of MDHS personnel in the fraud, waste, and abuse, and the likelihood of additional fraud, waste, and abuse existing in the actions of these subrecipients, auditor cannot state, with reasonable assurances, the amount of grant costs for the TANF grant were used appropriately.

For fiscal year 2017: $6,333,044 (TANF)
For fiscal year 2018: $28,419,923 (TANF)
For fiscal year 2019: $31,155,361 (TANF)
For fiscal year 2018: $593 (SSBG)
For fiscal year 2019: $111,262(SSBG)

For fiscal year 2018: $497,987 (SNAP)
For fiscal year 2019: $139,564 (CCDF)

 

All information related to this audit finding has been referred to the Mississippi Office of the State Auditor Investigative Division, the United States Department of Justice, the Office of Inspector General for the United States Department of Health and Human Services, and the Federal Bureau of Investigation.

See page 71 for complete listing of all funds at the disposal of MCEC and FRC 2017-2019. All of which are deemed possibly to have been misused.

Pages 71 – 104  Details of the auditor’s evaluation of the:

  • Causes and
  • Effects of MDHS fraud, waste and abuse of federal funds.

This includes that the widespread fraud, waste, and abuse has led to public distrust of MDHS, and a loss of integrity in the public welfare system in the State of Mississippi.

  • Recommendations
  • Pursue legal remedies
  • Conduct a widespread forensic audit of MDHS
  • Perform internal investigations of former and current MDHS staff
  • Report any suspected criminal activity
  • Strengthen existing controls
  • Procure adequate and appropriate training for all staff
  • Increase awareness of regulations in subrecipients

FULL AUDIT REPORT: MDHS-Management-Letter-2019-1

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