After embezzlement arrests, TANF block grants come under scrutiny in search for accountability

The Mississippi Legislative Black Caucus is among the Mississippi lawmakers looking for reform and accountability in how federal dollars are distributed to the poorest people in the Magnolia State.

MLBC Chairwoman Angela Turner Ford called the actions of former Mississippi Department of Human Services Director John Davis and five others “utterly disgusting.” The State Auditor’s office arrested the six Wednesday for embezzling millions in federal funds meant to feed the state’s neediest families. The exact amount they stole is still under investigation, but it is expected to exceed $4 million.

“I shudder to think of the families, programs and services that went unaddressed and unfunded while those involved took government dollars for themselves,” Davis said in a statement Friday. “It is a shame and disgrace for them to have lined their pockets with money set aside for our families and children.”

Arrested in embezzlement scheme: Top row, left to right – John Davis, Brett DiBiase, Anne McGrew; bottom row – Nancy New, Zach New, Latimer Smith (photos via Hinds County Sheriff)

The way federal funds for programs such as Temporary Assistance to Needy Families, or TANF, flow to the states may be to blame for making such embezzlement relatively easy. The funds are awarded through block grants, and the states decide how to manage and spend the money.

Prior to 1996, the federal government matched half or more of every state dollar of cash assistance to needy families. That changed with the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Since then, states receive fixed amounts under block grants along with broad discretion on how to use the funds.

Block grant proponents say the grants allow states to shift funds into programs that help families get away from cash assistance through work programs and support for work such as child-care subsidies, but the reality is far different.

“In TANF’s early years, when the economy was strong and cash assistance caseloads were shrinking, states did use their flexibility to take some of the funds that had gone for benefits to families and redirect them to child care and work-related programs or supports,” wrote the authors of a February 2019 report from the Center on Budget and Policy Priorities. “But over time, states redirected a substantial portion of their state and federal TANF funds to other purposes, to fill state budget holes, and in some cases to substitute for existing state spending. Even when need rose during the Great Recession, states often didn’t bring the funds back to the three core areas of basic assistance, child care, and work programs, and instead cut them.”

The block grants also allow the state to give money to “sub-grantees” such as the Mississippi Community Education Center run by Nancy New and her son, Zach New, both of whom were among the group arrested Wednesday on embezzlement charges.

“That’s where there’s no accountability and loopholes can be created, and that’s exactly what has happened,” Rep. Jarvis Dortch (D-Jackson) told WLBT.

“I think the general public should understand this is one of the problems with block granting, when they hear about how states can benefit from being untied from rules to use block grant dollars for healthcare or TANF or welfare.

“This is the kind of stuff that happens when people don’t pay attention.”

Sen. John Horhn (D-Jackson) put it succinctly.

“The department privatized a lot of the delivery of services, and they still spent a lot of that money,” Horhn told WJTV, “but they spent it for bogus purposes.”

State Auditor records dating back to 2014 show the need to strengthen accountability for block grant funds. In a July 2019 audit, the office noted that “Failure to properly monitor subrecipients could allow noncompliance with federal regulations to occur and go undetected, potentially resulting in questioned costs.”

The State Auditor noted that MDHS didn’t even have a full, comprehensive list of grant fund recipients.

“The taxpayers deserve to know that money is being spent appropriately, in accordance with the law, and that the proper safeguards to prevent fraud are in place,” State Auditor Shad White said in a release at the time.

Nonetheless, in Mississippi, legislative efforts to curb fraud in the welfare system have focused on recipients, not administrators. On Thursday, less than one day after the embezzlement arrests, the state Senate passed a bill to give the State Auditor’s office the authority to examine income tax returns of applicants to benefits programs including TANF, but especially Medicaid.

Medicaid is one of the state’s largest expenses, using roughly 25% of the general funds available.

“If there’s one part of our budget that seems to expand every year, and eats away at all parts of our pocketbooks, it’s the Medicaid budget,” Sen. Chris McDaniel, R-Ellisville, said during the meeting discussing the latest bill, adding that the state must “make sure the people who are receiving it are those who deserve it and should be receiving it. And those that are not, well, they shouldn’t be getting it.”

In past sessions, lawmakers added drug testing and work requirements.

“This is not about compliance. This is about terror. We’re going to use this law and we’re going to terrorize a bunch of folks,” Sen. Horhn said during the Thursday committee meeting. “What the history of our Medicaid compliance tells us is that it ain’t the recipients. It’s not the recipients, it’s providers. And in recent cases, it’s employees of the state of Mississippi.”

Last year, the Office of the Inspector General in the State Auditor’s office, which was established in 2018 to identify fraud in MDHS, identified 27 intentional TANF violations totaling $14,224, about one-hundredth of one percent of the program, Mississippi Today reports.

“We need to make sure people are complying with the laws,” White said last summer.

Mississippi TANF block grant distribution. Source: U.S. Department of Health and Human Services (click to enlarge image)

In 2018, Mississippi received about $135 million in TANF block grants from the U.S. Department of Health and Human Services. About 5.4% of that, roughly $7 million, was distributed to needy families so they could buy food—what HHS considers “basic services.”

Mississippi’s allocation to basic services is one of the lowest in the nation, down from 22% in 2006, and it assists only about 10% of the 15,000 children living in poverty in the state. In 2017, only nine states allocated less than 10% on direct financial distributions.

Mississippi also has some of the most stringent requirements to receive direct financial assistance. Childless adults are not eligible, and a family of three must not have any income over $680 a month, although work requirements are in place as well.

“Direct financial assistance for the nation’s poorest families with children has weakened significantly under TANF, with potentially devastating long-term consequences for children growing up in families with little or no cash income to meet basic needs,” the CBPP report said. “In 2017 states provided cash assistance to just 23 families for every 100 families in poverty, down from 68 families when the TANF block grant was created. And states engage few recipients in work activities, leaving most unemployed low-income parents to find work on their own.”

Additionally, “state TANF spending choices can exacerbate racial inequities and unequal access to TANF cash assistance. In fact, black families are more likely than white families to live in the states that spend the least on basic assistance, and thus black children face a particularly high risk of growing up in families with little or no access to basic needs,” the report states.

In a statement released Sunday on his Facebook page, White said he was “calling on the Legislature to immediately require a full forensic audit of DHS by a competent private CPA firm. My office cannot do an audit of that magnitude any time soon and still handle our normal duties. This is the only way we will be able to know how every dollar was spent in the programs that were abused.”