Money meant to help poor Mississippians was instead used to buy expensive cars, sponsor a college baseball tournament, hire family members of a top state official and pay Brett Favre for speeches he never gave, according to a new report from State Auditor Shad White.
The 104-page audit of the Mississippi Department of Human Services released Monday shows how federal welfare grant funds flowed from DHS into two nonprofits, which then frequently spent the cash in inappropriate or suspicious ways.
More than $94 million in welfare money spending was “questioned” by auditors, according to the report — alleging either outright misspending or lack of documentation showing it was spent properly.
In a statement, White said the report “shows the most egregious misspending my staff have seen in their careers at the Office of the State Auditor.” He added that “if there was a way to misspend money, it seems DHS leadership or their grantees thought of it and tried it.”
The routine annual audit, which focused on fiscal year 2019, follows six criminal indictments earlier this year related to the welfare spending. White has called that case Mississippi’s largest embezzlement scandal on record, involving about $4 million in welfare money known as Temporary Assistance for Needy Families program, or TANF.
Those facing charges include former DHS Director John Davis as well as Nancy New, the leader of the Mississippi Community Education Center, or MCEC, one of the nonprofits that received millions of TANF dollars.
The Clarion Ledger and other outlets have reported on issues at DHS and potential misspending by MCEC for months. But the extent of misspending and lack of controls detailed in Monday’s audit was not previously known. In addition, the audit shows for the first time how a second nonprofit, the Family Resource Center of North Mississippi, or FRC, also made many questionable or allegedly inappropriate expenditures using welfare cash.
Both MCEC and FRC often conducted programming under the “Families First” name.
The spending was possible because Davis limited outside monitoring of the welfare grants, officials said. He “unilaterally” controlled much of the money himself, said one of the auditors who compiled the report, Stephanie Palmertree. In addition, auditors said they found forged documents, a limited or nonexistent process for vetting
White said his office will forward the findings to the U.S. Department of Health and Human Services, which oversees the welfare program. Depending on what the feds view as misspending, White said, this could lead to cuts in future TANF payments or other sanctions placed on the state. It may mean, he said, that the state will be forced to use more of its own money to assist needy families.
Among the audit’s “questioned” spending:
- The two nonprofits used welfare money to hire lobbyists, often without paperwork describing the work they were supposed to do.
- MCEC gave contracts to, and hired, family members of Davis, sometimes making lump sum payments. The payments and salaries to his nephew and brother-in-law totaled more than $1 million over the last several years, auditors said.
- Brett Favre’s company, Favre Enterprises, was paid $1.1 million by MCEC over two installments for appearances, promotions, autographs and speaking engagements by the former star quarterback from Mississippi. Auditors said after reviewing dates and other details they determined Favre “did not speak nor was he present for those events.” They wrote the amount Favre made in the deal was “unreasonable.” The Clarion Ledger has reached out to the Favre’s agent for comment on this story and several related DH stories and has not received a response. He faces no criminal charges.
- Both nonprofits gave welfare money to a trio of wrestlers, Ted DiBiase, Ted DiBiase, Jr., and Brett DiBiase — some of it for work never performed, some for “unreasonable” travel costs.
- MCEC paid Victory Sports Foundation with welfare money to run fitness programs. Mississippi legislators and other officials or staffers participated in some of them, free of charge. The trainer who runs Victory, Paul Lacoste, has said he did not know he was receiving welfare money from the nonprofit.
- MCEC bought three cars with welfare money, each worth more than $50,000, for New and two sons. Salaries, cellphones and other expenses were also paid using welfare money. The vehicles included a 2018 Nissan Armada, a Chevrolet Silverado and a Ford F-250. In each case, the vehicle was registered to MCEC, but auditors said the vehicles were for personal use.
- The report highlighted many questionable advertising, promotional and branding expenses paid using welfare money. As previously reported, they included payments to a number of media outlets — including the Clarion Ledger for digital ads, TeleSouth Communications, which owns SuperTalk, and to WAPT-TV.
- MCEC used welfare money for sports-related purposes, including sponsoring a college baseball tournament and other NCAA events.
- MCEC cut a $3,000 check to a bookkeeper at the organization, though a handwritten note said that “$3,000 cash was given to” Davis, the DHS executive director.
- MCEC moved $6 million in welfare money to a private school and organization run by New, and bought supplies for the school.
- The audit confirmed Clarion Ledger reporting that New and her son had invested welfare money in a Florida medical company, Prevacus, in exchange for the company conducting “clinical trials of the new medicine on children in Mississippi.” Several TANF payments were made to the company, but after auditors first began asking about use of TANF funds in July 2019, the payment description was changed to “Bingo” in accounting software used by the nonprofit, auditors wrote.
A statement from DHS said agency leaders dating back to the departure of Davis made “significant efforts” to clean up the agency by implementing more internal controls and transparency measures. They include a rewritten state TANF plan overseeing welfare contracts, more monitoring of specific programs, and additional reporting by recipients of DHS funds.
Auditors first learned of possible fraud when DHS staffers took their concerns about unusual spending to former Gov. Phil Bryant last June. Bryant then forwarded on the report to White.
White on Monday said it appears several staffers, some still working at the agency, were aware of much of the spending highlighted in the audit. He said auditors have seen email “traffic, back and forth,” and heard “stories about how staff was aware of what was going on.”
Property identified in the audit that was inappropriately purchased using welfare money “does not belong to the Auditor’s office,” White noted, “but it should be marked as DHS property, and DHS should use their legal authority and move quickly to seize it.”
Palmertree, one of the auditors, said while MCEC and FRC knew they were receiving welfare money, many of the organizations and companies paid by the two nonprofits did not. MCEC and FRC should have disclosed to these groups they were recieving welfare money, but it does not appear that happened. She added there was a general “lack of documentation” at both nonprofits.
White said additional indictments could be coming in the separate criminal case. Federal investigators including the FBI are now involved.