‘A whitewash’: Emails show MDHS pushed to hamstring probe into welfare misspending
The independent audit serving as the guide in the state’s lawsuit to recoup millions in stolen or misspent welfare funds was “severely limited” in scope — a major public concern as the welfare fraud investigation continues.
The Mississippi Department of Human Services hired an accounting firm, using welfare dollars, to ostensibly get to the bottom of who stole or misspent millions in welfare dollars and try to recoup them.
But never-before-published emails Mississippi Today obtained through a records request show Gov. Tate Reeves’ appointed MDHS director pushed to limit who and what the hired forensic audit could examine. And he tried to keep the state auditor and other law enforcement agencies out of the mix.
"This is nothing but a whitewash to show that MDHS was not complicit in this problem, except for (former MDHS Director) John Davis," a deputy in state Auditor Shad White's office wrote to White in April of 2020 after reviewing the proposal MDHS drafted to solicit an auditing firm.
White's office was to be a "third party" to a contract with a forensic auditor. But MDHS pushed to limit the Office of the State Auditor’s involvement and even at one point omitted language requiring the independent auditor to contact OSA or other law enforcement if it spotted potential crimes — a standard practice in audit contracts.
Gov. Reeves said he appointed MDHS Director Bob Anderson, a former prosecutor, in March of 2020 to clean up the welfare agency. Weeks into Anderson’s administration, he clashed with White over the forensic audit proposal, records show. White pushed to expand the breadth of the review and provide more OSA involvement.
"We should be on the same side – the side of the taxpayers, trying to find the misspending that happened at DHS and all the people responsible," White wrote to Anderson in April of 2020 during heated negotiations about the forensic audit proposal. "In my view, you are either for an audit that will reveal those things, like the audit we have proposed, or you are not. Your proposal as it stands would waste taxpayer money and not reach the issues that need to be reached."
Neither Reeves nor Anderson would agree to an interview about the forensic audit issues or provide comment in response to Mississippi Today’s findings.
White, who is involved in separate state and federal criminal investigations into the welfare scandal, appeared to win some concessions on the final forensic audit contract. At the same time, he objected to MDHS having access to the auditor’s office’s workpapers.
But in the end, the prominent national accounting firm Clifton Larson Allen hired for the audit noted it was limited — and in some cases "severely limited" — in what and whom it could examine in its probe and said it could likely have found more misspending if allowed freer rein.
MDHS recently lamented the forensic audit's limitations, and attempted to lay those limitations off on Auditor White's office. But communications between the two during spring of 2020 indicate MDHS pushed for severe limits on the probe.
"If I were you, I would want to know where the misspending happened and who is responsible, not spend my time negotiating downward an audit with OSA," White wrote to Anderson. "If you want to spend DHS money on this audit so that the current staff can avoid looking bad, without you discovering who was involved with the misspending, then you will bear the responsibility for that and any additional misspending that happens going forward. I will not participate."
Gov. Reeves, who oversees MDHS and appointed Anderson, recently said the CLA forensic audit is the lodestar for the state's lawsuit against numerous people and businesses to try to recover some of the at least $77 million in misspent welfare money. He also made clear he’s calling the major shots at MDHS when it comes to the lawsuit.
Reeves fired the attorney MDHS had hired to recover the money after the attorney went beyond the scope of the forensic audit. The attorney tried to subpoena records about possible involvement of former Gov. Phil Bryant and his wife, former NFL football star Brett Favre and the USM Athletic Foundation — many of whose board members are large campaign donors and political supporters of Reeves. Reeves said attorney Brad Pigott should have stuck to the metes and bounds of the forensic audit, and accused him of having a political agenda and seeking the media spotlight when he went beyond it.
White has criticized Pigott's firing and said the state should seek to recover all the misspent money it can. He said he will make sure state and federal criminal investigators have the records Pigott attempted to subpoena.
At the time MDHS was preparing the forensic audit proposal request, White was already gearing up to release a report in May of 2020 that questioned $94 million in MDHS spending and illustrated systemic failures of the welfare department.
White's audit found that the welfare department continually violated the law by spending funds from a federal program called Temporary Assistance for Needy Families, a federal block grant notorious for being used as a slush fund in some states on projects that did not fulfill the purposes of the grant or did not serve the needy.
But the forensic audit by an independent firm, not White's report, would be the document the state would use to determine who to bring civil litigation against to recoup misspent funds.
Some people, including at least one criminal defendant arrested in February of 2020, expected a forensic audit to significantly contradict White's narrative about widespread misuse. An email White sent his deputies alludes to the perception some had that the auditor's office had an agenda in going after MDHS.
"I’m also tempted to tell them this is a great way to determine if we’re auditing to ‘frame’ a ‘narrative’ or not: just let a private CPA have broad leeway to confirm or disprove our findings," White wrote.
Emails Mississippi Today obtained now reveal that MDHS's current leadership may have attempted to place its thumb on the scale to mitigate exposure for the agency as a whole, including dozens of employees who reviewed expenditures and contracts.
"To be completely honest — this is a half-hearted attempt to complete a forensic audit that has completely erased our input," wrote Stephanie Palmertree, financial and compliance audit director for the state auditor’s office who headed up much of its MDHS probe. "And seeing how MDHS is defending the clearly fabricated contract procurements that they have completed, I'm not sure I would trust the current staff to choose an independent auditor. This is a PR attempt at making MDHS look like they did all they could."
As part of the discovery process in the civil case, Mississippi Community Education Center, the nonprofit founded by criminal defendants Nancy New and her son Zach New, has asked for communication from MDHS related to the forensic audit to examine how it may have artificially targeted select vendors.
In his email response to a missive from White in April 2020, Anderson said, "My objective is and has been since I arrived here at MDHS to ferret out the misspending and the responsible parties ... We're trying to fashion an RFI (Request for Information) that captures the agreement between both the agencies and that defines the parameters of what will be an expensive and lengthy audit undertaking."
The contract with CLA was for up to $2.1 million. But according to a review of expenditures on the state's transparency website, MDHS has only paid the firm less than $800,000, one of few times the agency has appeared frugal with spending federal welfare dollars on things other than poor people.
At one point, in response to White's office suggesting changes to the audit proposal, Anderson said, "Much of what we took out relates to the criminal investigation ... which is not the purpose for this forensic audit since the criminal case is already indicted ..."
White took umbrage with this and responded: "You are aware that the statement 'the criminal case is already indicted' is incorrect; I've told you and the public that the case is still being investigated. More indictments are possible. Even if the investigation were not still ongoing, one would want criminal activity reported to law enforcement.
"... I'm not sure why you removed both your previous language and OSA's language on reporting criminal activity," White wrote to Anderson. "... Also, there is some confusion about what a 'forensic' audit is. The AICPA (American Institute of Certified Public Accountants) notes that the term forensic means to be suitable for use in a court of law. Removing the language that says this audit may serve as evidence in a legal proceeding is to remove part of the audit's very purpose.
"The same could be said for removing the language about how auditors may be called to testify in court," White wrote. "And the same could be said for removing language requiring misappropriations to be 'listed by individual, as could be proven in a legal proceeding.' This audit should trace expenditures to completion and show, with findings that could stand up as evidence in court, who directed that spending, whether those people are inside or outside DHS."
Asked for comment about limitations on CLA's forensic audit, a spokesman for White's office said, "We will let CLA's audit speak for itself on areas where CLA believed they had adequate information to conduct the audit and where CLA was limited."
In its audit reports delivered in September of 2021, CLA noted that it was not given access to former DHS Director John Davis’ computer hard drive and it was initially limited in whose emails it could examine.
“CLA was unable to obtain a copy of John Davis’ MDHS hard drive, as it was in the possession of the (Office of State Auditor) investigative division. Additionally, the scope of work limited CLA’s review of emails to include only John Davis’ MDHS emails. If other electronic evidence had been made available to CLA, additional information not currently known to CLA could impact the findings communicated in this report.”
White's spokesman said: "As we have explained previously, the hard drive (it was actually his computer) was obtained through our criminal investigation. We do not make evidence obtained in a criminal investigation available to anyone outside of law enforcement. That includes private CPA firms. Of course, we obtained that computer from DHS. If DHS backed up any files on the computer to their network, that could be made available per a public records request. We would also remind you that, while we will not provide the computer to a private CPA firm, we have made all of our evidence, including the hard drive, available to the FBI."
CLA also noted that the New nonprofit, Mississippi Community Education Center, did not provide records to the auditors and did not cooperate with its probe. Much of the theft and misspending in the scandal occurred through MCEC, which was helping run a statewide anti-poverty program called Families First for Mississippi.
White's spokesman said: "Despite pledging to assist auditors, the News failed to provide MCEC’s original documentation of spending to CLA, as CLA noted. CLA was given access to copies of all the MCEC documents (contracts, invoices, general ledger reports, etc.) that the auditor’s office had. Unfortunately, copies are not considered original documentation. Only MCEC could provide original documentation. Without original documentation, CLA had to note that their audit was limited. DHS ultimately decided to not pursue obtaining original documents from MCEC after MCEC failed to cooperate. OSA was asked to use our subpoena power to obtain documents from Heart of David, and we did."
But in a supplemental forensic audit report released in April, Clifton Larson Allen noted that they didn't even have access to a lease agreement that the State Auditor possessed, and were forced to retrieve it from a news article.
Another deputy in White's office who reviewed MDHS' drafts for a forensic audit proposal, at the time noted, "Very limited scope outside of TANF (federal welfare dollars). We know SSBG, CCDF and SNAP funds were also misused. They've even limited the scope to contracts directed by Davis to only TANF contracts ... Firm is only required to alert MDHS of potential criminal activity, not us, the federal government or law enforcement."
White, at the time, wrote to Anderson: "Obviously criminal activity should be reported to us, not just DHS, as we are the state's chief law enforcement agency for crimes involving public funds. DHS's failure to report criminal activity to the Auditor's office has been a problem in the past."
White's spokesman this week explained that OSA auditors, as routine, repeatedly asked DHS staff over several years if they knew of fraud at the agency, and "... Staffers repeatedly failed to report any fraud in these meetings."
While it was admittedly incomplete, the forensic audit report released in October 2021 did not significantly reverse White's findings. It determined a total of $77 million was misspent: $36.1 million in welfare purchases that broke federal rules, including $12.4 million worth of possible fraud, waste or abuse, plus an additional $40 million that auditors said they did not have proper documentation to analyze.
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