Mississippi Auditor Shad White attends Cindy Hyde-Smith's watch party at the Westin Jackson Wednesday, November 27, 2018. Credit: Eric J. Shelton, Mississippi Today/ Report for America

Shortly after last year’s arrests in the largest reported public embezzlement scheme in state history, a whistleblower disclosed several previously unreported fraud allegations to the welfare department regarding one of its federal grant recipients.

Federal authorities and internal investigators at Mississippi Department of Human Services eventually began investigating the subgrantee, 100 Black Men of Jackson, an agency spokesperson told Mississippi Today on Tuesday.

But when the State Auditor’s Office later asked state agency officials at two separate meetings in 2020 if they knew of any other potential fraud, they did not relay the report, the audit released Tuesday said.

The February 2020 internal report claimed that an employee of 100 Black Men falsified timesheets to pay people who were not working at the nonprofit and that they were using federal money to buy personal items for staff and their family, according to the audit, which did not name the organization.

Ricky Jones, who has served as president of 100 Black Men of Jackson since March, said his organization just learned about the investigation last week when DHS notified them they would not be receiving a welfare grant this year. Jones said he had no knowledge of any alleged fraud and that the nonprofit had cooperated with audits from the department as well as the auditor’s office.

“We’re taken aback by this,” Jones said.

Jones said as a result of the lost funding, 100 Black Men had to cancel some upcoming afterschool and ACT prep programs, but that they would continue other services, such as administering vaccines and a student field trip to Alabama.

DHS spokesperson Danny Blanton rejected the auditor’s narrative that the department concealed fraud reports from the auditor’s office. Blanton explained that the U.S. Department of Health and Human Services’ Office of Inspector General had told the state agency not to interfere with its investigation and that the auditor’s office was already aware of the federal investigator’s involvement.

The audit, on the other hand, said that when the auditor’s office pressed DHS agency officials about the fraud tip, “some members of executive management still did not inform auditors of the fraud, or expressed to auditors that the fraud tip was ‘minor’ and involved an incident of an employee using a business care for personal use, and of an employee ‘sleeping on the job.’”

By the time these meetings occurred — in April, July and August of 2020 — former welfare department director John Davis, who was indicted last year for his critical role in the alleged scheme, had been retired for about a year.

Gov. Tate Reeves appointed the agency’s current director, Bob Anderson, in March of 2020.

Anderson has ushered in new procurement practices and financial controls to increase accountability among the department’s welfare grantees.

“The agency has still not adopted a comprehensive approach to responding to and reporting suspected fraud; additionally, the agency did not take all the needed steps to verify suspected fraud was investigated timely and misappropriated monies were returned,” the audit stated.

The audit released Tuesday also criticized the welfare department for continuing to fund two now-embattled nonprofits well into fiscal year 2020, as Mississippi Today first reported last July, even after learning that the auditor suspected they were responsible for the misspending of tens of millions of welfare dollars, the audit said.

The two nonprofits ran an anti-poverty program called Families First for Mississippi, through which most of the money that was allegedly stolen, $4.15 million, or potentially misspent, $94 million, flowed.

One of the nonprofits, Mississippi Community Education Center, shuttered after law enforcement arrested its owner Nancy New, while officials at the other nonprofit, Family Resource Center of North Mississippi, have not faced criminal charges.

Blanton also said that since the department was still under contract with the nonprofits in the last months of 2019, the beginning of fiscal year 2020, it could not simply cut off their funding while auditors were investigating allegations.

“We could not cease funding until we had that letter from the state auditor (in January 2020). And at that point we did,” Blanton said.

The auditor’s office contradicted this notion, stating that the department has an obligation to ensure grant monies are expended properly.

Instances of fraud and abuse in Mississippi’s welfare system were widespread, including among other organizations who received subgrants from the Families First nonprofits. Representatives for the nonprofits have not returned several calls and emails over the last year.

Emails obtained by Mississippi Today provide greater insight into the scope and type of foolery occurring within the federal grants.

Mississippi Today retrieved a 2017 email from Family Resource Center director Christi Webb, in which she described to Davis allegations of blatant deception at one of their partners, the local community action agency in Greenville, Warren-Washington-Issaqueena-Sharkey Community Action Agency or WWISCAA.

“…(T)heir immediate supervisor called a meeting with the staff in Myersville and told them that they had to document names of clients and activities performed in that center. They explained to her that there had been no activities and no clients and they were told to come up with some regardless. We received sign in sheets and some activities that had been ‘conducted.’

“To make sure before actually calling their hand on this,” Webb continued, “I contacted another licensed social worker with a master’s degree who had been employed by them under our Families First grant. She explained that she quit due to fear of losing her license and the requirements of the supervisor. She explained that they were absolutely doing nothing in either center.”

Webb said she and her organization’s financial officer visited WWISCAA’s Greenville Center and found just one vehicle in the parking lot. Before they exited their car, a woman was unlocking the door and waving them in.

The center’s director “had made a call to her warning her that we were there. There was a reception area, a 10 x 10 room with two tables and 6 chairs and another office.” On a separate visit, she said, they found no employee present.

Webb attached a letter in her email to Davis, showing her organization had terminated their contract with WWISCAA. The community action agency did not return calls to Mississippi Today Tuesday morning.

New sent a similar email to former Department of Human Services Director Christopher Freeze, who took over for Davis a few months after Davis retired in 2019. New described issues with their partner, Victory Sports Foundation owned by former football player Paul Lacoste, who was paid to conduct a boot camp-style fitness program, often attended by professionals and lawmakers.

“As we do with all of our partners that receive Families First funding through Mississippi Community Education Center, we evaluate their services and outcomes and review their expenses,” New wrote. “In doing so, we have identified concerns with Victory Sports’ expense reports and services. Also, we have had a number of complaints concerning his services. We are verifying those as well to determine the validity of such. We certainly do not want to falsely accuse. Therefore, while doing our due diligence, Paul LaCoste was asked not to use Families First for Mississippi’s brand and his funding was suspended. We do appreciate the partnership with Victory Sports and Paul’s work. However, in saying that, we want to be good stewards of all financial support. I just wanted you to be aware of this information in case this comes up.”

The audit released less than a year later said that according to its budget, Victory Sports used the nearly $1.4 million welfare subgrant to pay for staff and coaches, a program design fee, equipment, an onsite nurse, marketing and other administration costs, and to purchase a $20,000 trailer and a $70,000 vehicle.

The report also said Victory Sports charged a fee for participants in the boot camp to attend and it did not conduct any kind of eligibility to ensure it was serving those in need. Paul Lacoste did not return calls Tuesday morning.

The welfare agency’s documentation, or lack thereof, shows Mississippi Community Education Center and Family Resource Center of North Mississippi did not, as New stated, evaluate the services and outcomes of its grantees. Their own outcome reports that they sent the state each month, which were meant to show how many people they served, contained nonsensical figures, Mississippi Today first reported.

Together, the nonprofits paid more than $3 million to retired WWE wrestler Ted DiBiase Jr. for little more than inspirational speaking and promotion and paid a six-figure salary to retired football player Marcus Dupree, plus covered the $9,500-a-month mortgage on his horse ranch.

The welfare agency possessed no records showing the outcomes of those programs, an agency spokesperson said.

Mississippi Community Education Center has also failed to turn over documents the agency needs to complete its forensic audit or conduct a full grant closeout — the department’s process for ensuring the nonprofit complied with grant requirements and spent the funds properly.

“MDHS is concerned about the authenticity of MCEC documents due to submission of numerous versions of the same request in a monitoring visit,” Anderson wrote to the auditor’s office in March in response to the latest report. “This inability to validity MCEC’s records is further complicated by the fact that the principals of MCEC are currently under indictment and essentially unavailable to MDHS to review any further documentation or answer questions.”

Nancy New and her son Zach New are scheduled to stand trial on welfare embezzlement charges in October. Davis may face trial in September.

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Anna Wolfe, a native of Tacoma, Wa., is an investigative reporter writing about poverty and economic justice. Before joining the staff at Mississippi Today in September of 2018, Anna worked for three years at Clarion Ledger. She also worked as an investigative reporter for the Center for Public Integrity and Jackson Free Press. Anna has received recognition for her work, including the 2020 Al Neuharth Innovation in Investigative Journalism Award and the February 2020 Sidney Award for reporting on Mississippi’s debtors prisons, a first place 2020 Green Eyeshade Award for reporting on jobs, poverty and the Mississippi economy and the Bill Minor Prize for Investigative Journalism in 2019 and 2018 for reporting on unfair medical billing practices and hunger in the Mississippi Delta.