TUPELO • Mississippi Auditor Shad White has demanded that the Family Resource Center of North Mississippi repay $15.5 million after allegedly misspending federal grant money earmarked to help needy families.
The auditor’s office on Tuesday afternoon issued a raft of repayment demands that stem from ongoing allegations of waste, abuse, corruption and embezzlement that involve the Mississippi Department of Human Services, that agency’s former executive director, John Davis, and a sprawling network of accused conspirators.
These demand letters follow the release early this month of findings by independent auditors who opened up the books at MDHS and several other related organizations, including the Tupelo-based FRC.
Forensic accountants ultimately said that the FRC may have inappropriately spent public money, with $6.7 million of the organization’s examined payments identified as possibly indicating “fraud, waste and abuse.”
And of $19.8 in federal grant money spent by FRC and subjected to scrutiny by these accountants, more than half was deemed not allowed under federal rules restricting how the grants in question are to be spent.
Serious claims involving FRC surfaced in this forensic examination: high-dollar contracts paid for little or no work performed; money awarded to unqualified but well-connected people; sloppy business and accounting procedures; and weak oversight of its own vendors and subcontractors.
FRC leadership did not immediately respond to a request for comment about the auditor’s demands on Tuesday.
But in statements and interviews with the Daily Journal last week and early this week, FRC leadership did address the forensic audit and disputed many of its claims involving FRC.
Casey Lott, who is both an attorney acting on behalf of FRC and a member of the organization’s board – also denied that FRC and Director Christi Webb are responsible for any misspending involving the federal Temporary Assistance to Needy Families program.
“If it’s inconsistent with the federal regulations, that is a Mississippi Department of Human Services problem. It’s not a Christi Webb or Family Resource Problem,” Lott said. “They did what they were instructed to do by the state of Mississippi.”
Demand letters name key figures
Davis — the former executive director of MDHS — was served a repayment demand of $96.3 million, according to a written statement by the auditor’s office. This amount includes interest on inappropriate spending that Davis allegedly authorized.
The nonprofit Mississippi Childhood Education Center was served a demand of $68 million.
The FRC repayment demand of $15.5 million is the third largest of 11 demand letters issued by the auditor on Tuesday.
This total includes $12.5 million in questioned spending, and interest on that amount.
Former football star and Mississippi native Brett Favre is also named in a demand letters seeking $828,000 from Favre Enterprises.
“After our first DHS audit, I told the public we would have to consult with our federal partners at the Department of Health and Human Services before coming to final conclusions about who owed what money back,” White said in a statement. “Those partners were waiting for this forensic audit. Now that it’s complete, we are in a position to demand the illegally spent welfare funds be returned to the state.”
Recovery efforts by state auditor follow criminal charges involving MDHS figures
Davis – the former MDHS director – and Nancy New – owner of nonprofit MCEC – as well as four others were arrested and charged in 2020 on charges of seeking to embezzle approximately $4.14 million in federal grant money. These charges followed an investigation by the auditor’s office.
Of the six people charged, two have now pleaded guilty – retired wrestler and onetime MDHS employee Brett DiBiase, and former MCEC finance officer Ann McGrew.
MCEC and FRC acted for several years as partner organizations to operate the Families First for Mississippi initiative, using grant money provided by MDHS while under Davis' leadership.
No one associated with the FRC has been charged with criminal wrongdoing.
If the FRC and other organizations and individuals do not pay back the demanded money, Attorney General Lynn Fitch could seek to recover the money through civil action.
State agency commissioned forensic audit probe in response criminal allegations
In response to criminal charges filed against Davis and his alleged conspirators, the current leadership of MDHS launched an effort to get its house in order and commissioned an independent accounting firm to examine the Temporary Assistance for Needy Families program, or TANF.
Conducted by Maryland-based CliftonLarsonAllen, this forensic audit was released on Oct. 1 and analyzed TANF spending during a four-year period from January 2016 to December 2019.
Out of $126 million in total TANF spending analyzed across the four-year period, auditors say $36 million did not meet federal rules.
Another $40 million in TANF spending is questioned, but could not be tested or analyzed because MCEC did not cooperate in the forensic audit and open its books to CLA.
FRC did cooperate with forensic accountants.
The forensic accounting team tested – directly or using an extrapolation formula – some $19.8 million in TANF expenses associated with FRC, though the nonprofit was awarded nearly double that amount in TANF grants during the four-year period reviewed by forensic auditors.
Out of $19.8 million in TANF spending by FRC that was tested, more than half was deemed by accountants to be outside federal guidelines for the program.
Once a cash assistance program, often called “welfare,” a 1996 federal law reorganized TANF as a block grant, with each state exercising wide discretion over how to spend its portion of the money.
Federal TANF money is intended help needy families care for their own children, to promote job readiness, to encourage marriage and two-parent families and to prevent out-of-wedlock pregnancies.
The core claim now lodged by state authorities against FRC is that its TANF spending that now stands under scrutiny did not advance these four goals.
Family Resource Center leadership looks to place responsibility with the state
In response to this forensic audit, Lott provided written responses to the Daily Journal and answered some questions on behalf of FRC.
Lott is managing partner at Booneville law firm Langston & Lott and said he is not paid by FRC for the legal work he performs.
Lott said that FRC followed the directions of MDHS, specifically the former director, Davis. He also emphasized that Mississippi is required to submit to the federal government what’s called a “state plan,” which outlines how it plans to use TANF money.
“MDHS developed a State Plan that it said took full advantage of TANF’s flexibility in methods of reducing welfare dependency while still meeting federal TANF requirements,” Lott said.
Lott suggested that this state plan shield FRC from responsibility for any spending that may have been contrary to federal rules.
“Mrs. Webb and FRC administered the TANF grant funds exactly as they were instructed to and in accordance with the State Plan developed by John Davis and MDHS,” Lott said in a written statement. “If the State Plan was inconsistent with the federal guidelines, then that's falls squarely on the shoulders of MDHS, not FRC.”
MDHS took a different view of the matter.
In a statement provided to the Daily Journal last week, MDHS Executive Director Robert G. “Bob” Anderson said federal approval of a state plan does not itself provide advance approval of any use of TANF money, and that spending from the program is judged against federal guidelines and not the state plan.
“The audit findings speaking to the allowability of the costs under federal regulations is the most accurate measurement,” Anderson said in writing.
He then added: “Ultimately, it will be the federal government, not the State of Mississippi who will determine the allowability of TANF expenditures and any necessary repayments for unallowable or misappropriated funds.”
The Office of State Auditor also took some issue with the FRC stance in a statement issued last week.
“Two separate audits conducted by two different teams of CPAs are clear: some expenditures made by FRC do not fall within federal TANF guidelines,” said Logan Reeves, a spokesman for the Auditor’s Office. “The State Plan was taken into account by both CLA and the State Auditor’s office. Ultimately, a court will decide who is responsible for misspending that money.”
Webb herself declined to speak with the Daily Journal, insisting that she cannot do so because criminal cases against Davis and New remain ongoing.
Lott and Webb declined to answer questions about whether Webb expects to testify during any forthcoming trial.
After declining comment, Webb did say in an email that news reporting about audit findings involving FRC have “killed us” and “put us out of business,” speaking of FRC.
The organization does continue to operate, but with a reduced slate of programming after consolidating its once far-flung operations to an office in Tupelo.