‘Increasingly absurd expenditures’: Newly released audit questions $94 million in DHS spending

John Davis worked his way up to executive director of the Mississippi Department of Human Services after nearly thirty years with the welfare agency and had begun publicly crafting a new vision for how the state helps the poor.

But by the time he took the helm of an agency that administers over $1 billion in public assistance program in 2016, “he saw it as an opportunity to build a kingdom over there,” State Auditor Shad White said Monday just before releasing a 104-page letter outlining the ways the agency misspent millions.

Under the Davis administration, federal funds intended to serve the poor instead enriched his family and friends and paid for lobbyists, luxury vehicles, religious concerts, expensive getaways, publicity events with famous athletes and even a speeding ticket, the state audit published on Monday reveals.

“Once you talk yourself into ignoring the laws and the regs around how to spend the money, it’s easy to talk yourself into increasingly absurd expenditures over time,” White said.

The new report covering fiscal year 2019 officially questions $94 million in Human Services spending, some from previous years. The state auditor’s single audit, conducted every year on behalf of the federal government, sheds new light on the misspending that led to six arrests in early February.

Human Services recently announced it has revised its internal policies and will require welfare subgrantees to submit more comprehensive financial records moving forward. The new executive director Bob Anderson — whom Gov. Tate Reeves appointed earlier this year to replace interim director Jacob Black, Davis’ former deputy — is overseeing an internal investigation to determine if any current employees were involved in the alleged scheme and make any necessary personnel changes. The agency also plans to hire an accounting firm to conduct a forensic audit of the department.

But the agency could still face consequences from the U.S. Department of Health and Human Services, which has the option to cut the state’s grant funding in future years, impose hefty fines or require the state to increase its match to make up for the misspent funds.

When Davis, who is now awaiting trial in the largest public embezzlement case in state history, became director in 2016, the agency was serving a record low number of families through the cash assistance program. The welfare caseload continued to plummet as the state reported spending more money on programming, such as parenting classes and skills training, than on direct payments to poor families. But the department didn’t keep track of who these programs served, and in many cases did not require that the recipients meet income requirements.

“No one ever took the time to see if any of the people were actually eligible or needed the money,” said Stephanie Palmertree, financial and compliance audit director for the state auditor’s office. “And that’s the biggest concern here is, when you’re funding things like baseball fields for select softball teams, obviously that money is going to people who don’t need the money and individuals who actually need that assistance … they’re missing out because you’re choosing to fund services for people who aren’t eligible.”

After taking charge, Davis first dismantled the agency’s competitive bid process for contracts, the auditor said. He directed the agency to make upfront, multi-million dollar payments to Mississippi Community Education Center and Family Resource Center of North Mississippi to run a program they called Families First of Mississippi.

Over less than four years, the Human Services gave the nonprofits about $65 million and $45 million, respectively, according to a review of state expenditures.

Typically, subgrantees for the welfare program submit claims for reimbursement as opposed to receiving upfront payments, several subgrantees told Mississippi Today, making the arrangement with the two nonprofits all the more unusual.

Davis encouraged the nonprofits to pay large sums to retired professional wrestlers Ted Dibiase,

Ted Dibiase, Jr., and Brett Dibiase for work they didn’t do or that didn’t help the needy, the auditor said.

Davis was close to the Dibiase family; his agency awarded more than $2 millions in grants to Heart of David Ministry owned by the patriarch, Ted Dibiase Sr., dubbed the “Million Dollar Man.” The director heavily involved both Dibiase brothers Brett and Ted in official department matters and taxpayer funded, out-of-state trips.

Emails suggest Davis and Ted Dibiase Jr. had gone into business together, developing a motivational training program called Law of 16 that they delivered to public agencies on the nonprofit’s dime. Ted Dibiase Jr.’s companies Priceless Ventures LLC and Familiae Orientem received more than $3 million from the nonprofits between 2017 and 2019, but the audit does not show that Davis financially benefited. Davis was even trying to help the wrestler with an autobiography.

A Hinds County grand jury indicted Davis and Brett Dibiase in February for allegedly using welfare funds to pay for Brett’s drug treatment at a Malibu facility. They’ve pleaded not guilty. Davis’ attorney Merrida Coxwell did not return calls to Mississippi Today Monday.

The grand jury also indicted Mississippi Community Education Center’s founder Nancy New and her son Zach New for allegedly embezzling over $4 million for their personal use. They’ve pleaded not guilty. The New nonprofit represents the most egregious misspending, according to the audit: It transferred over $6 million to private schools owned by Nancy New, such as New Summit School, bought luxury vehicles for New family members and paid expensive rents on property owned by the News, only for them to sit empty. Zach New used welfare funds to pay back a loan on his retirement account, the audit says.

The auditor discovered many millions in misspent funds, but he did not specify a dollar amount out of the $94 million that rose to the level of misspending. Many more questioned costs resulted from a lack of documentation