STATE OF MISSISSIPPI
OFFICE OF THE STATE AUDITOR
SHAD WHITE

April 22, 2020
Single Audit Management Report
Robert Anderson, Executive Director
Mississippi Department of Human Services
200 South Lamar St.
Jackson, MS 39201
Dear Mr. Anderson:
Enclosed for your review are the single audit findings and other audit findings for the Mississippi
Department of Human Services for Fiscal Year 2019. In these findings, the Auditor’s Office recommends
the Mississippi Department of Human Services:
Single Audit Findings:
1. Strengthen controls to ensure compliance with subrecipient allowable cost activities of the SNAP,
CCDF, TANF and SSBG programs;
2. Strengthen controls in order to verify expenditures are allowable and appropriate for Supplemental
Nutrition Assistance Program (SNAP);
3. Strengthen controls over compliance with allowable cost requirements of the TANF program;
4. Strengthen controls over compliance with allowable cost requirements of the CCDF Cluster;
5. Strengthen controls over review of computations and data for Allowable Cost activity used in the
manual cost allocation process and review of indirect costs allocated to federal programs;
6. Strengthen controls over compliance with cash management requirements of the Temporary Assistance
for Needy Families (TANF) program;
7. Strengthen controls over compliance with eligibility and benefit payment requirements of the CCDF
Cluster;
8. Strengthen controls to ensure compliance with the matching requirements of the CCDF Cluster;
9. Strengthen controls to ensure compliance with the award’s Period of Availability/Period of
Performance for the CCDF program;
10. Strengthen controls over procurement policies and awarding subgrants for the TANF program;
11. Strengthen controls over procurement policies relating to subrecipients for Supplemental Nutrition
Assistance Program (SNAP);
12. Strengthen controls over submission of required federal reports of the TANF program;
13. Strengthen controls over on-site monitoring for the Supplemental Nutrition Assistance Program
(SNAP), Child Care and Development Block Grant (CCDF), Temporary Assistance for Needy Families
(TANF), Social Services Block Grant (SSBG) and Low Income Home Energy Assistance (LIHEAP)
Programs;
14. Strengthen controls over subrecipient monitoring of OMB Uniform Guidance Audits for the Temporary
Assistance for Needy Families (TANF), Child Care and Development Block Grant (CCDF), Low
Income Home Energy Assistance Program (LIHEAP), and Social Services Block Grant (SSBG)
Programs; and
POST OFFICE BOX 956 • JACKSON, MISSISSIPPI 39205 • (601) 576-2800 • FAX (601) 576-2650

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April 22, 2020
2 Page
15. Strengthen controls over the review of Foster Care maintenance payment rates and the calculation of
Foster Care maintenance payments for the Title IV-E Foster Care program.
Other Audit Finding:
16. Strengthen controls over the removal of MAVERICS User Login Profiles for the TANF Program.
Please review the recommendations and submit a plan to implement them by April 29, 2020. The enclosed
findings contain more information about our recommendations.
During future engagements, we may review the findings in this management report to ensure procedures
have been initiated to address these findings.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing
of internal control over compliance and the results of that testing based on the requirements of OMB
Uniform Guidance. Accordingly, this report is not suitable for any other purpose. However, this report is
a matter of public record and its distribution is not limited.
I hope you find our recommendations enable the Mississippi Department of Human Services to carry out
its mission more efficiently. I appreciate the cooperation and courtesy extended by the officials and
employees of the Mississippi Department of Human Services throughout the audit. If you have any
questions or need more information, please contact me.
Sincerely,

Stephanie C. Palmertree, CPA, CGMA
Director, Financial and Compliance Audit Division
Enclosures

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April 22, 2020
3 Page
SINGLE AUDIT FINDINGS
In conjunction with our audit of federal assistance received by the State of Mississippi, the Office of the
State Auditor has completed its audit of the State’s major federal programs administered by the Mississippi
Department of Human Services for the year ended June 30, 2019.
Our procedures and tests cannot and do not provide absolute assurance that all federal legal requirements
have been met. In accordance with Section 7-7-211, Mississippi Code Annotated (1972), the Office of the
State Auditor, when deemed necessary, may conduct additional procedures and tests of transactions for this
or other fiscal years to ensure compliance with legal requirements.
Report on Compliance for Each Major Federal Program
We have audited the Mississippi Department of Human Services’ compliance with the types of compliance
requirements described in the OMB Uniform Guidance Compliance Supplement that could have a direct
and material effect on the federal programs selected for audit that are administered by the Mississippi
Department of Human Services for the year ended June 30, 2019.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants
applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the State of Mississippi’s major federal
programs based on our audit of the types of compliance requirements referred to above. We conducted our
audit of compliance in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in Government Auditing Standards, issued
by the Comptroller General of the United States; and Office of Management and Budget (OMB) Uniform
Administrative Requirements, Cost Principles and Audit Requirements (Uniform Guidance). Those
standards and Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance
about whether noncompliance with the types of compliance requirements referred to above that could have
a direct and material effect on a major federal program occurred. An audit includes examining, on a test
basis, evidence about the Mississippi Department of Human Services’ compliance with those requirements
and performing such other procedures as we considered necessary in the circumstances. However, our
audit does not provide a legal determination of the Mississippi Department of Human Services’ compliance.
Results of Compliance Audit Procedures
The results of our auditing procedures disclosed instances of noncompliance with those requirements,
which are required to be reported in accordance with OMB Uniform Guidance and which are identified in
this letter as items 2019-030, 2019-031, 2019-032, 2019-033, 2019-034, 2019-035, 2019-036, 2019-037,
2019-038, 2019-039, 2019-042, and 2019-043.
Internal Control over Compliance
Management of the Mississippi Department of Human Services is responsible for establishing and
maintaining effective internal control over compliance with the types of compliance requirements referred
to above. In planning and performing our audit of compliance, we considered the Mississippi Department
of Human Services’ internal control over compliance with the types of requirements that could have a direct
and material effect on each major federal program to determine the auditing procedures that are appropriate
in the circumstances for the purpose of expressing an opinion on compliance for each major federal program
and to test and report on internal controls over compliance in accordance with OMB Uniform Guidance,
but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance.

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Accordingly, we do not express an opinion on the effectiveness of Mississippi Department of Human
Services’ internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over compliance
that might be material weaknesses or significant deficiencies and therefore, material weaknesses or
significant deficiencies may exist that were not identified. However, as discussed below, we identified
certain deficiencies in internal control over compliance that we consider to be material weaknesses and
significant deficiencies.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a deficiency,
or combination of deficiencies, in internal control over compliance, such that there is a reasonable
possibility that material noncompliance with a type of compliance requirement of a federal program will
not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal
control over compliance identified in this letter as items 2019-030, 2019-031, 2019-032, 2019-033, 2019035, 2019-039, 2019-042, and 2019-043 to be material weaknesses.
A significant deficiency in internal control over compliance is a deficiency, or a combination of
deficiencies, in internal control over compliance with a type of compliance requirement of a federal program
that is less severe than a material weakness in internal control over compliance, yet important enough to
merit attention by those charged with governance. We consider the deficiencies in internal control over
compliance identified in this letter as items 2019-034, 2019-036, 2019-037, 2019-038, 2019-040, 2019041, and 2019-044 to be significant deficiencies.
In addition, we noted another other deficiency in internal control over compliance that require the attention
of management that we have reported on the attached document, “Other Audit Findings,” as items OTH19-01.
Findings and Recommendations
ACTIVITIES ALLOWED/ALLOWABLE COSTS
Material Weakness
Material Noncompliance
2019-030

The Mississippi Department of Human Services Should Strengthen Controls to
Ensure Compliance with Subrecipient Allowable Cost Activities.

CFDA Number(s)

10.551 Supplemental Nutrition Assistance Program (SNAP)
10.561 State Administrative Matching Grants for the Supplemental Nutrition
Assistance Program (SNAP)
93.558 Temporary Assistance for Needy Families (TANF)
93.575 Child Care and Development Block Grant (CCDF)
93.596 Child Care Mandatory and Matching Funds of the Child Care and
Development Fund (CCDF)
93.667 Social Services Block Grant (SSBG)

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Federal Award

12-35-2841 (SNAP)
2017IQ390345
2018IQ390345

G1701MSTANF
G1801MSTANF
G1901MSTANF
G1702MSTANF

G1701MSCCDF
G1801MSCCDF
G1901MSCCDF

Pass-Through

U.S. Department of Agriculture, U.S. Department of Health and Human Services

Questioned Costs

$94,164,608. See chart at the end of finding for detailed information.

Repeat Finding

No.

Statistically Valid

Varying types of sampling and testing techniques were used; some are considered
statistically valid and some are not. During the initial planning phase of the audit,
auditor identified population as two separate and distinct groups – 1) Payments
made by MDHS for services other than direct assistance to recipients 2) Payments
made to first tier subgrantees. However, due to increased fraud risk during the audit,
transactions were subdivided into many different populations so that statistical
projection of error rates could be utilized. High risk populations were examined at
100 percent, moderate risk populations were sampled individually, and low risk
items were grouped in one population to sample. Additionally, after initial testing,
it was determined that fraud risk was still at a high level and a nomenclature review
over the populations was performed to pull out specific transactions as individually
significant.

Background

Auditors were alerted to significant areas of fraud risk by the Governor of
Mississippi on June 21, 2019. An internal audit performed by staff of MDHS
uncovered a possible fraudulent scheme involving a third party contractor in the
TANF program and the Executive Director of MDHS at that time (JD).
Investigators from the OSA Investigative Division and financial auditors worked to
piece together information about this scheme and subsequently indicted six
individuals involved in a conspiracy to steal (by a variety of means) approximately
$4 million in TANF funds. The initial investigation into the theft coincided with
the fiscal year 2019 Single Audit. Due to this known fraud, auditors considered
many areas of grant expenditures to be high risk. In order to properly account for
and describe the significant areas of waste, fraud, and abuse that were uncovered
during the subsequent investigation and audit, the finding format of this particular
finding will vary.

Criteria

Applicable Internal Controls: The Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and the United States Government Accountability
Office (GAO) Green Book dictates that in order for organizations to have effective
internal control, the organization should have an effective control environment. A
component of an effective control environment is proper oversight ability,
accountability and commitment to ethical values.
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.404) states “A cost is reasonable - if in
its nature and amount, it does not exceed that which would be incurred by a prudent

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person under the circumstances prevailing at the time the decision was made to
incur the cost. The question of reasonableness is particularly important when the
entity is predominately federally funded. In determining reasonableness of a given
cost, consideration must be given to: (a) Whether the cost is of a type generally
recognized as ordinary and necessary for the operation of the non-Federal entity or
the proper and efficient performance of the Federal award. (b) The restraints or
requirements imposed by such factors as: sound business practices; arm’s-length
bargaining; Federal, state, local, tribal, and other laws and regulations; and terms
and conditions of the Federal award. (c) Market prices for comparable goods or
services for the geographic area. (d) Whether the individuals concerned acted with
prudence in the circumstances considering their responsibilities to the non-Federal
entity, its employees, where applicable its students or membership, the public at
large, and the Federal Government. (e) Whether the non-Federal entity significantly
deviates from its established practices and policies regarding the incurrence of costs,
which may unjustifiably increase the Federal award’s cost.”
The Code of Federal Regulations (2 cfr 200.405 (a)) states “A cost is allocable to a
particular Federal award or other cost objective if the goods or services involved
are chargeable or assignable to that Federal award or cost objective in accordance
with relative benefits received.”
MDHS requires each subgrantee to attest by signature that they have read and
understood the Subgrantee Manual issued by MDHS before payments on awards
can be made. Additionally, each subgrant administered by MDHS is governed by
the standard Subgrantee Agreement which sets out specific regulations that govern
the subgrant.
The Office of Family Assistance, a Division of the Office of Administration for
Children and Families and the grantor of TANF funds, states there are four tenets
of the TANF program –
1) To provide assistance to needy families so that children can be cared for in their
own homes or in the homes of relatives;
2) End the dependence of needy parents by promoting job preparation, work, and
marriage;
3) Prevent and reduce the incidence of out-of-wedlock pregnancies; and
4) Encourage the formation and maintenance of two-parent families.
The Office of Family Assistance produced Q&A: Use of Funds, published on May
2, 2013, which clarifies the use of funds for “needy” families and is copied,
verbatim, below:
“Q1: May States help the non-needy with services that are consistent with
TANF purpose one or two as long as those services fall outside the definition
of assistance?”
“A1: No. The first two statutory purposes (related to caring for children in their
own homes and ending dependence) are expressly for the needy. Therefore, the
statute envisions that States would serve only the needy when they are conducting
activities or providing benefits that are reasonably calculated to accomplish TANF
purpose one or two. This means that States would have to develop and apply criteria

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of financial need in these cases. However, States may use Federal TANF funds to
help both the needy and the non-needy with benefits or services that are reasonably
calculated to accomplish TANF purpose three or four (which relate to reducing outof-wedlock pregnancies and the formation and maintenance of two-parent families).
In serving the non-needy, States may use only segregated Federal TANF funds.”
While states are allowed and encouraged to use creative mechanisms to accomplish
the four main goals of TANF, the core purpose of the grant is to assist the needy.
States are allowed, in their State Plan, to define the eligibility of needy per tenet
and/or initiative. The TANF State Plan, as prepared by MDHS, states the following
income limits/thresholds for determining the eligibility of individuals for each
initiative:












Intensive Youth Supervision Programs – To provide a diversionary,
community based intensive supervision program for youth offenders.
Individuals must be at or below 300 percent of the Federal Poverty
Level.
Child Care Enhancements – To end the dependence of needy parents
on government benefits by promoting job preparation, work and
marriage. Must be TANF participants, or low income families at risk
of going onto TANF that are eligible for CCDF.
Responsible Fatherhood Initiative – To encourage the formation and
maintenance of two-parent families and prevent and reduce out-ofwedlock pregnancies. Financial eligibility determination is not
required for this program.
Post-Employment Assistance Programs – To end the dependence of
needy parents on government benefits by promoting job preparation
and work. Families eligible for this program are not required to be
TANF eligible, but must be at or below 200 percent of the Federal
Poverty Level.
TANF Prevention/Intervention – To develop projects in communitybased settings to prevent and reduce at-risk behaviors among youth
and their families to prevent or break the cycle of welfare dependence.
Financial eligibility determination is not required for this program.
Healthy Choices, Brighter Future Initiative – To involve community,
faith-based organizations, schools and families in the establishment of
educational and training programs on youth leadership development
and teen pregnancy prevention promoting abstinence. Financial
eligibility determination is not required for this program.

Additionally, based on the availability of funds, the following initiatives are
outlined in the TANF State Plan:
 TANF Summer Enrichment Program – no eligibility criteria are defined.
 TANF Work Program - no eligibility criteria are defined.
 Crisis Intervention Program – Families are not required to be TANF
eligible but must be below 150 percent of the Federal Poverty Level.
 Funds may be made available to Attorney General to implement programs
that serve at risk youth. No eligibility criteria are defined.

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




TANF Funds may be used for temporary care of children in foster care.
Families eligible for this program are not required to be TANF eligible but
must be below 300 percent of the Federal Poverty Level.
Families First Resource Centers – Individuals must be at or below 300
percent of the Federal Poverty Level.
TANF funds may be used to provide family preservation services to
families with dependent children. Families must be at or below 300
percent of the Federal Poverty Level.
State Coalition of the Young Men’s Christian Association (YMCA) for
the purpose of developing and implementing statewide programs that
serve the unmet needs of youth by way of Adolescent Offenders and Teen
Leadership Programs. Individuals eligible for this program are not
required to be TANF eligible, but must be at or below 300 percent of the
Federal Poverty Level.

The MDHS Subgrant/Contract Manual states in Section 5, under the heading
“Financial Management – Accounting Procedures” that “Separate financial records
shall be maintained for each subgrant. Separation serves record keeping
requirements and also eliminates potential conflicts with the subgrantees’ usual
record keeping systems which may reflect a different fiscal year, or accounting by
function or department rather than by subgrant or work activity. Each subgrantee
shall maintain one set of accounting records for the entire subgrantee entity which
shall separately identify the receipts and disbursements for each subgrant or other
source of funds. The subgrantee shall be able to isolate and trace every subgrant
dollar from receipt to expenditure and have on file appropriate supporting
documentation for each transaction.
Examples of documentation are vendor invoices, bills of lading, purchase orders,
payment vouchers, payrolls, bank statements and reconciliations, documentation to
verify that only eligible clients were served; employee activity sheets to verify
activities performed and the actual hours worked for each activity/subgrant; and,
cash receipt logs to verify all funds received and the actual date of receipt.”
Due to the substantial amount of questioned costs found during the fiscal year 2019
audit, questioned costs are grouped by category/type of expenditure below. Each
bulleted item below will also state the specific law, regulation or control that was
violated.
Condition

During the audit of fiscal year 2019, auditors noted that MDHS Executive
Leadership (specifically the former Executive Director, JD) participated in a
widespread and pervasive conspiracy to circumvent internal controls, state law, and
federal regulations in order to direct MDHS grant funds to certain individuals and
groups. Executive Director JD purposefully and willfully disregarded federal and
state procurement regulations in order to award a substantial portion of grant funds
from the TANF program to two specific subgrantees. These two subgrantees were
granted monies under the Families First Resource Center portion of the TANF State
Plan, which requires verification of eligibility criteria, defined as income at or below
300 percent of the Federal Poverty Level.
Executive Director JD then instructed these two subgrantees - Mississippi
Community Education Center (MCEC) and Family Resource Center of North

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Mississippi (FRC) - on which organizations and individuals to fund with third tier
grants. During the audit, auditors asked both of the two subgrantees to provide any
evidence or verification to support claims that MDHS approved transactions or
instructed the subgrantees to fund certain projects. Both claimed that instructions
were verbal and could not provide proof. Auditors were able to verify some
transactions were approved by Executive Director JD and MDHS executive staff
(both current and former) by performing a review of MDHS internal documents. It
is important to note that the subgrantees signed and attested to the subgrantees’
responsibility to ensure compliance with the regulations, policies, guidelines, and
requirements imposed by the Federal grantor agency and MDHS. The subgrantees
also signed and attested that the relationship between MDHS and the subgrantee is
not one of an employer-employee relationship, and that there should not be
relationship such as principal and agent; partners; joint ventures; or any other
similar relationship between MDHS and the Subgrantee.
Additionally, Executive Director JD instructed MDHS staff to disregard federal
regulations concerning monitoring and allowable costs to ensure that grant funds
continued to flow to these subgrantees. Executive Director JD, upon accepting the
position of Executive Director in January 2016, continued to fund these two
subgrantees with large grants in fiscal years 2017, 2018 and 2019. JD expanded on
the existing grants with TANF and also began funding MCEC and FRC with
additional awards generated from the CCDF, SNAP, MVAP, and TFAP federal
programs. Total amount funded to each of these two subgrantees referenced above
is noted below:
Initial Awards plus/less any Modifications
MCEC
FRC
TANF 2019
$19,422,992
$7,500,000
TANF 2018
$18,843,072
$17,620,170
TANF 2017
$1,000,000
$12,971,208
SNAP 2019
$1,034,685
N/A
SNAP 2018
$2,615,774
N/A
CCDF 2019 (From MS Community College $2,268,381
$2,177,483
Board by grant from MDHS)*
CCDF 2018 (From MDHS directly)
$3,484,592
$500,000
SSBG 2018
$3,000,000
$3,000,000
SSBG 2017
N/A
$900,000
Other unaudited federal grants**2019
N/A
$497,987
Other unaudited federal grants**2018
$30,000
$527,987
Other unaudited federal grants** 2017
$30,000
N/A
*MCEC and FRC are second tier subgrants from MS Community College Board
**MAVP and TFAP, included for informational purposes only.
Both MCEC and FRC also awarded subgrants of federal monies to different
programmatic groups (hereafter “second tier subgrants”). Additionally, MCEC and
FRC expended federal grant funds on administrative expenses and contracts. In
order to opine on the allowable costs compliance requirement, and, due to MDHS’
repeated material weakness and material noncompliance findings for Subrecipient
Monitoring in prior years Single Audit Reports, auditors felt obligated to review
programmatic and administrative expenditures at the first tier subgrantee level due
to the materiality of the grant awards.

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Audit work performed at MCEC and FRC determined that federal monies had been
comingled with other sources of revenue – namely fundraising revenue. Both
entities utilized classification codes to identify the source of the income when
paying vendors or coding expenses. However, through inquiry and analysis,
auditors were able to determine that MCEC used their “MDHS Grant Fund” bank
account to pay all expenses of the nonprofit – whether the expenses were federal,
state or private. Additionally, when audit personnel asked for details about their
record keeping, auditors were told that even though fundraising monies were
deposited into the “MDHS Grant Fund” bank account, they were then transferred
to their own bank accounts for proper record keeping, but all expenses were still
made from the MDHS Grant Account; thereby using grant funds for all expenses
whether federal, state or private.
Based on financial records of MCEC, MCEC did not maintain enough private,
nongovernmental grant revenue to pay for the private expenditures made by the
nonprofit (fundraising expenses, investments, profit sharing contributions, etc).
Moreover, auditors were able to determine that MCEC falsified requested
documents and general ledgers that were provided to the auditor. These falsified
documents included contracts with artificial scopes to indicate possible adherence
with TANF guidelines, forged signatures on contracts, general ledgers and expense
reports with transactions removed, etc. Additionally, information provided to
auditors often contradicted information that had been provided to MDHS. Finally,
auditors noted that some transactions that were originally coded in the accounting
software as “TANF expenditures” were changed to “Administrative expenditures”
after staff from the Office of the State Auditor (OSA) inquired about TANF
expenditures. Therefore, unless auditors could determine that private expenditures
were paid for with 100 percent private funds, the expenditures were included in the
nomenclature review of transactions.
FRC’s financial records were found to be inconsistent in their treatment of different
expenditures and the classification of those expenditures. Subgrant payments were
coded to a variety of expense codes, and payees were coded as both vendors and
“other names” in the financial records. In one instance, similar payments for a
transaction were coded as “Consulting”, “Contractual” and “Subsidies, Loans, and
Grants”. Based on information in the accounting records, FRC coded expenses
based on preliminary budgetary figures and not based on actual cost categories.
The following exceptions were noted during the testwork of expenditures at the
MDHS level and first tier subgrantee level. It should be noted that some recipients
of funds from both MCEC and FRC were not aware that they were being awarded
federal monies when granted contracts, grants, or awards. Neither MCEC or FRC
provided the required federal information on any contract, grant, or award that
stated the source of the funds, including the name of the Federal Program or the
CFDA number. Without these required disclosures, auditors are unable to
determine if contractors or second tier subgrantees of MCEC and FRC were aware
of allowable cost criteria or restrictions.
All amounts questioned below are TANF funds unless otherwise noted. While this
report is for fiscal year ended June 30, 2019, auditor determined that there were
substantial questioned costs in prior fiscal years. When questioned costs were

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11   P a g e
discovered in prior fiscal years, that information has also been included in this report
for informational reasons.
Personal Benefit Contracts/Related Party Contracts
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.318(c)) states no employee, officer, or
agent of a grantee may participate in the selection, award or administration of a
contract supported by a federal award if he or she has a real or apparent conflict of
interest. Conflicts of interest are defined as any instance when the officer, or agent,
any member of his or her immediate family, his or her partner, or an organization
which employs or is about to employ any of the parties indicated, has a financial or
other interest in or a tangible personal benefit from a firm is considered for a
contract supported by federal awards.
The Code of Federal Regulations (2 cfr 200.459(a)) states that, in order to be paid
as a consultant, a person must possess a special skill, and not be considered an
officer or employee of the entity.
Signed subgrant agreements between MDHS and the subgrantees state in Section
XXIX – Conflict of Interest - “Subgrantee must ensure that there exists no direct or
indirect conflict of interest in the performance of the Subgrant. Subgrantee must
warrant that no part of federal or state money shall be paid directly or indirectly to
an employee or official of MDHS as wages, compensation or gifts in exchange for
acting as an officer, agent, employee, subcontractor or consultant to the Subgrantee
in connection with any work contemplated or pertaining to the Subgrant.”
In Section VI – Relationship of the Parties, it states, “It is expressly understood and
agreed that MDHS enters into this Subgrant with Subgrantee on a purchase of
service basis and not on an employer-employee relationship basis. Nothing
contained herein shall be deemed or construed by MDHS, the Subgrantee, or any
third party as creating the relationship of principal and agent, partners, joint
venturers, or any similar such relationship between MDHS and the Subgrantee.
Neither the method of computation of fees or other charges, nor any other provision
contained herein, nor any acts of MDHS or the Subgrantee hereunder, creates or
shall be deemed to create a relationship other than the independent relationship of
MDHS and the Subgrantee.”
The MDHS Subgrant/Contract Manual, which subgrants must attest to have read
and understood prior to receiving grant awards, states in Section 6, under the
heading “Open and Free Competition” that “all procurement transactions shall be
conducted in a manner that provides maximum open and free competition consistent
with…applicable federal law. Procurement procedures shall not restrict or
eliminate competition…Examples of what is considered to be restrictive of
competition include, but are not limited to…noncompetitive contracts to
consultants that are on retainer contracts…organizational conflicts of interest.”

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Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following violations regarding conflicts of
interest:


MCEC awarded contracts for services to members of Executive
Director JD’s immediate family, including a company owned by his
brother-in-law and his nephew.
o

JD’s brother-in-law was initially contracted for a business lease of
property in the amount of $365,000. The property was located in
Brookhaven, MS and was leased for a three-year period for a sum
of $88,333 annually, with a $100,000 non-refundable security
deposit. The effective date of the lease was upon “completion of
the building” indicating that the property was not available for use
when the lease was signed (February 2, 2019). However, the lessor
was paid three payments totaling $365,050 between February 5,
2019 and February 7, 2019.
On May 2, 2019, MCEC notified the lessor that they would be
terminating the lease in 60 days from the date of the letter, and
would request reimbursement of any unused rental payments and
that those payments should be reimbursed on August 15 and
September 15, 2019. Based on inquiry with MCEC personnel and
a review of MCEC financial records (as of December4, 2019) no
full repayment of any funds was made.
Questioned costs in fiscal year 2019- $365,050

o

JD’s brother-in-law was contracted as the “Leadership Outreach
Coordinator” for a sum of $150,000. The contract term was from
June 1, 2018 to September 30, 2019. However, the total fee of the
contract was paid in a lump sum on June 1, 2018.
Questioned costs in fiscal year 2018 - $150,000

o

JD’s nephew was contracted to coordinate and create a Coding
Academy and Website Design program in the amount of $139,500
for the period of February 1, 2019 to January 31, 2020. A lump
sum payment in the amount of $139,500 was made on February 2,
2019. Additionally, travel in conjunction with the contract in the
amount of $1,309 was reimbursed.
Questioned costs in fiscal year 2019- $140,809

o

JD’s nephew was also employed by MCEC from July 16, 2018
through February 15, 2019 at a semimonthly salary of $5,000
(annualized to $120,000 annually). For the period of February 1st
through 15th in 2019, he was both contracted and employed by

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MCEC for an overlapping period. Gross pay for the period totaled
$67,769.23.
Questioned costs in fiscal year 2019- $67,769


FRC awarded contracts and employed the same individuals as MCEC
above.
o

JD’s brother-in-law was employed by FRC from July 1, 2018 to
July 15, 2019. Gross pay for the period totaled $93,600. These
funds were paid via the Early Childhood Academy grant funded by
MDHS through the CCDF grant.
Questioned costs for fiscal year 2019 - $93,600 (CCDF)

o

JD’s nephew was also employed by FRC from October 17, 2017
through July 12, 2018. Gross pay for the period totaled $55,625.
For the period of June 15th through July 12, 2018, he was both
contracted and employed by FRC for an overlapping period.
Additionally, travel in conjunction with the contract in the amount
of $14,368 was reimbursed. While the amount of the contract was
paid prior to fiscal year 2019, it is included in this report because it
was discovered by auditors during the 2019 audit.
Questioned costs in fiscal year 2018 - $63,975
Questioned costs in fiscal year 2019 - $6,018

o

JD’s nephew was contracted to coordinate and create a Coding
Academy and Website Design program in the amount of $130,000
for the period of June 15, 2018 to June 14, 2019. A lump sum
payment in the amount of $130,000 was made on July 16, 2018.
Additionally, travel in conjunction with the contract in the amount
of $14,278 was reimbursed. The travel reimbursements are often
from Mississippi to New Orleans and include mileage
reimbursements, hotel stays, per diem reimbursement, in room
dining in addition to per diem, etc. The contract states that the
contract amount should be inclusive of all fees necessary to
complete the program; therefore, even if the initial contract was
made at an arm’s length bargaining arrangement, the travel would
be questioned. Based on inquiry with personnel at FRC, the travel
was needed so that JD’s nephew could obtain the necessary skills
to teach the coding academy.
Questioned costs in fiscal year 2019- $144,278



MDHS also employed JD’s nephew from September 16, 2016 to
October 15, 2017 at varying salaries ranging from $36,177 to $45,000.
His ending salary, $45,000, was paid from TANF funds in fiscal year
2018. Due to the intertwined and familial relationship, it is necessary

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to question the salary payments plus fringe. Actual salary payments
plus fringe included $50,173 in FY 2017 and $19,477 in FY 2018.
Questioned costs in fiscal year 2017 - $50,173
Questioned costs in fiscal year 2018 - $19,477
Total amount paid to JD’s brother-in-law – $608,650
Total amount paid to JD’s nephew – $492,499
Total amount questioned in 2017 – $50,173
Total amount questioned in 2018 – $233,452
Total amount questioned in 2019 – $723,924
Total amount questioned in 2019 – $93,600 (CCDF)
Governmental Relations/Lobbyists
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.450) states
that the cost of certain influencing activities associated with obtaining grants,
contracts, cooperative agreements, or loans is an unallowable cost. Additionally,
paragraph (c) puts additional restrictions on nonprofit organizations, such as MCEC
and FRC. Those restrictions include any costs to influence the outcome of any
federal, state, or local election, referendum, initiative, or similar procedure through
in-kind or cash contributions, endorsements, publicity, or similar activity is
unallowable. Any legislative liaison activity, including attendance at legislative
sessions or committee hearings, gathering information regarding legislation, and
analyzing the effects of legislation is also unallowable.
The Code of Federal Regulations Title 45. Public Welfare (45 cfr 93.100(a)) states
that no appropriated funds may be expended by the recipient of a Federal contract,
grant, loan, or cooperative agreement to pay any person for influencing or
attempting to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a Member of
Congress in connection with any of the following covered Federal actions: the
awarding of any Federal contract, the making of any Federal grant, the making of
any Federal loan, the entering into of any cooperative agreement, and the extension,
continuation, renewal, amendment, or modification of any Federal contract, grant,
loan, or cooperative agreement.
The MDHS Subgrant/Contract Manual, which subgrantees must attest to have read
and understood prior to receiving grant awards, sets out and defines the regulations
that subgrantrees and lower-tier subrecipients must follow, including the
“Restrictions on Lobbying – Common Rule (P.L 101-121, Section 319).”
Internal Revenue Service Publication 4221-PC (Revised 3-2018) states “A public
charity is not permitted to engage in substantial legislative activities (commonly
known as lobbying). An organization will be regarded as attempting to influence
legislation if it contacts, or urges the public to contact, members or employees of a
legislative body for purposes of proposing, supporting or opposing legislation, or

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advocates the adoption or rejection of legislation…. a 501(c)(3) organization
may…risk losing its tax-exempt status and/or be liable for excise taxes.”
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following violations regarding Governmental
Relations/Lobbying:


MCEC entered into multiple contractual agreements with consulting
firms in order to maintain governmental revenue streams or to lobby
on behalf of their organization, the Families First Initiative, or MDHS.
Based on a nomenclature review of the financial records, auditors
were able to determine the following unallowable lobbying contracts:
o
o

o

AvantGarde Strategies was paid $21,000 in FY 2019, but no
contract was provided to the auditor.
Inside Capital was paid $14,000 in FY 2017; $150,325 in FY 2018;
and $154,000 in FY 2019 for a total of $318,325. No contract was
provided to the auditor.
Lucas Compton was contracted by MCEC for services including
sustaining federal revenue streams and bipartisan advocacy. The
contract was for the period of October 1, 2017 through October 1,
2018. Actual payments included $36,000 in FY 2018 and $36,000
in FY 2019 for a total of $72,000.
Questioned costs for fiscal year 2017 – $14,000
Questioned costs for fiscal year 2018 – $186,325
Questioned costs for fiscal year 2019 – $211,000



FRC entered into a contractual agreement with Lucas Compton for
$84,000 in fiscal year 2018. Auditor did not have a copy of the
contract to determine the performance period of the contract.
Questioned costs for fiscal year 2018 – $84,000

Total amount questioned in 2017 – $14,000
Total amount questioned in 2018 – $270,325
Total amount questioned in 2019 – $211,000
Consulting
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.459(a)) states that costs of professional
and consultant services rendered by persons who are members of a particular
profession or possess a special skill, and who are not officers or employees of the
non- Federal entity, are allowable, subject to paragraphs (b) and (c) when reasonable
in relation to the services rendered and when not contingent upon recovery of the
costs from the Federal government.

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The Code of Federal Regulations (2 cfr 200.318(d)) states that the subgrantee must
avoid acquisition of unnecessary or duplicative items.
Signed subgrant agreements between MDHS and the subgrantees state, in Section
XI “Agreements by Subgrantee” – A. General Responsibility, that entities currently
in a contractual relationship with MDHS to provide the same or similar services are
not eligible to enter into a Contract/Subcontract with the Subgrantee.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following violations regarding consultants:


MCEC entered into multiple contractual agreements with consulting
firms on behalf of their organization, the Families First Initiative, or
MDHS. These consulting contracts were often for duplicative services
for overlapping time periods and were for large sums of money.
Additionally, auditors could find no evidence that any type of
procurement regulations were followed in securing these contracts.
Both MCEC and FRC indicated to auditors that former Executive
Director JD instructed both subgrantees to enter into contracts with
some of these individuals. Due to the excessive fees paid for these
contracts and the duplicative services, auditor considers these costs to
be unreasonable, and therefore questioned. Additionally, many of the
expenses coded to “Consulting” in MCEC’s general ledger do not
appear to be for legitimate consulting services. Those expenditures
will be detailed in additional sections based on the actual purpose of
the purchases. Based on a nomenclature review of the financial
records and a detailed review of contracts, auditors were able to
determine the following questioned costs (names of private
individuals will not be used due to restrictions on personally
identifiable information (PII)):
o

o

o
o

The Stephen Group was contracted to provide strategic
organizational, process and management consulting services and
provide Families First with project management support
surrounding the concept of generational poverty. The term of the
contract was for the period of November 28, 2017 through
November 27, 2018 with a renewal option for December 1, 2018
through December 1, 2019. The initial contract was not to exceed
$500,000 and was to be split between MCEC and FRC. Actual
payments on the contract included $74,157 in FY 2018 and
$139,256 in FY 2019 for a total of $213,413.
Consultant 1 was contracted to perform services but no copy of the
contract was made available to auditors. Payments included
$34,000 in FY 2018 and $6,000 in FY 2019 for a total of $40,000.
Consultant 2 was paid for consulting services regarding
curriculum. Payments included $97,500 in FY 2018.
NCC Ventures was contracted to plan and coordinate industry
sector initiatives with small businesses, and to provide training
regarding workforce development. Contracted amount was

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o

$50,000. Actual payments totaled $41,667 in FY 2018; $4,167 in
FY 2019 for a total of $45,834
Institute of Project Management was contracted for services coded
as consulting in the general ledger; however, no contract was
provided to auditors. Payments included $45,000 in FY 2018.
Questioned costs for fiscal year 2018 – $292,324
Questioned costs for fiscal year 2019 – $149,423



FRC entered into contractual agreements with the same consulting
organizations as MCEC, as follows:
o

o

o

The Stephen Group was contracted to provide strategic
organizational, process and management consulting services and
provide Families First with project management support
surrounding the concept of generational poverty. The term of the
contract was for the period of November 28, 2017 through
November 27, 2018 with a renewal option for December 1, 2018
through December 1, 2019. The initial contract was not to exceed
$500,000 and was to be split between MCEC and FRC. Actual
payments on the contract included $65,394 in FY 2018 and
$142,053 in FY 2019 for a total of $207,447.
CG Consulting was contracted for $16,000 from August 2, 2018 to
July 31, 2019. The scope of the project was for professional
development plans, training, and evaluation plans. Actual
payments of $8,000 were made in fiscal year 2019.
NCC Ventures was also contracted by FRC for workforce
development training, but no contract was provided to auditors.
Actual payments included $50,000 in FY 2018.
Questioned costs for fiscal year 2018 – $115,394
Questioned costs for fiscal year 2019 – $150,053



MDHS also entered into a consulting contract with NCC Ventures
during FY 2018 for a total of $72,900 from December 1, 2017 to May
31, 2018. The contract was paid out in equal installments of $12,150
from March 2018 to September 2018, which is four months after the
contract end date. The entire contract amount of $72,900 was paid.
This amount is questioned in Finding #2019-039.

Total amount questioned in 2018 – $407,718
Total amount questioned in 2019 – $299,476
Payments for Sports/Coaches/Sporting Celebrities
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.459(a)) states that costs of professional
and consultant services rendered by persons who are members of a particular

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profession or possess a special skill, and who are not officers or employees of the
non- Federal entity, are allowable, subject to paragraphs (b) and (c) when reasonable
in relation to the services rendered and when not contingent upon recovery of the
costs from the Federal government.
The Code of Federal Regulations (2 cfr 200.434(a)) states the costs of contributions
and donations, including cash, property, and services from the grantee to other
entities are unallowable.
The Code of Federal Regulations (2 cfr 200.469) states the costs incurred for
intramural activities, student publications, student clubs, and other student
activities, are unallowable, unless specifically provided for in the Federal award.
The TANF State Plan states TANF funds may be used to fund the expansion of the
Families First Resource Centers. Through these centers, MDHS will advance the
development, expansion and enhancement of a statewide network of communitybased, prevention focused, parent resource centers that offer assistance to families.
To encourage the formation and maintenance of two-parent families and reduce out
of wedlock pregnancies the centers will:









Provide early comprehensive support for parents;
Promote the development of parenting skills;
Promote the independence of families;
Increase family stability;
Improve family access to resources and opportunities for assistance;
Focus on prevention of teenage pregnancy while supporting teen
parents;
Support the needs of families with children with disabilities; and,
Provide a safe place for supervised children.

Families eligible for this program are not required to be TANF eligible, but must be
at or below 300 percent of the Federal Poverty Level.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following violations:


MCEC expended federal grant monies to fund multiple sports
programs. MCEC could not provide any documentation supporting
the correlation of these sports programs to any of the four tenets of
TANF, nor did MCEC utilize any criteria to establish eligibility for
these programs. Additionally, as detailed below, the auditor does not
consider the costs of some of the programs reasonable or necessary to
meet federal requirements.
o

Favre Enterprises was contracted to appear at several events, record
promotions, and provide autographs for marketing materials from
July 1, 2017 through July 31, 2018. Additional contract
information provided that the contract fee would be paid in
installments and would include three (3) speaking engagements,
one (1) radio spot and one (1) keynote address. There was no
mention of the contract price in the contract supplied to auditors.

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When auditors requested further details on the performance of the
contract, specifically the dates of any speaking engagements,
MCEC provided a list of dates and events that fulfilled the contract
terms; however, upon a cursory review of those dates, auditors
were able to determine that the individual contracted did not speak
nor was he present for those events. Two payments were made to
Favre Enterprises – one for $500,000 in December 2017 and one
for $600,000 in June 2018.
Due to the inability to verify that any work was performed in order
to fulfill the contract, and due to the unreasonable amount paid, the
entire payment of $1,100,000 paid in FY 2018 is questioned.
o

Rick Rigsby Communications was paid $52,100 for motivational
speaking in April 2019. No contract was provided to auditor;
therefore, correlation to TANF cannot be verified.

o

Diamond Design and Construction was paid $42,750 in FY 2019
to convert and line Field 8 for the North Jackson Youth Baseball
League. The field is located next to New Summit School, the
school owned and operated by the Director of MCEC (NN).
According to inquiry, Field 8 was often utilized as a baseball field
for New Summit Academy.
Due to the inability to verify that this work was related to TANF,
including no correlation to any tenet of TANF, and due to the risk
that this payment was made for the personal use of those involved
with MCEC, this payment is questioned.

o

North Jackson Youth Baseball was paid $65,000 in FY 2017 to rent
baseball fields. MCEC stated the amounts were a donation to the
organization. Auditor noted that the Programmatic Director for
MCEC (SP) and the spouse of one of the principals at MCEC (JN)
are currently on the Board of Directors of the baseball organization.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, the provision against using
TANF funds for intramural student activities, and the unreasonable
amount paid, these payments are questioned.

o

P360 Performance Sports was contracted to allow four Jackson
schools to use the baseball fields for practice and training. The
schools listed in the contract are schools that operate in at-risk
areas. However, based on inquiry with the vendor, these amounts
also allowed for a specialty, private team (Mississippi Bombers) to
use the field, thereby making at least a portion of the payments
unallowable due to lack of ability to verify that the payments were
for needy individuals. There was no allocation of payments to
isolate the portion of the payment that would be allowable. Auditor
was provided one contract for $125,000 for a six-month period in

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2019; however, actual payments included $72,000 paid in FY 2018
and $146,750 in FY 2019.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, the provision against using
TANF funds for intramural student activities, and the unreasonable
amount paid, these payments are questioned.
o

Overtime Sports was paid $37,500 for a sponsorship of a college
tournament in FY 2019.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, and the regulation noted
above that sponsorships are disallowed under federal regulations,
these payments are questioned.
Questioned costs for fiscal year 2017 – $65,000
Questioned costs for fiscal year 2018 – $1,172,000
Questioned costs for fiscal year 2019 – $279,100



FRC expended federal grant monies to fund multiple sports programs.
FRC could not provide any documentation supporting the correlation
of these sports programs to any of the four tenets of TANF, nor did
FRC utilize any criteria to establish eligibility for these programs.
Additionally, as detailed below, the auditor does not consider the costs
of some of the programs reasonable or necessary to meet federal
requirements.
o

Metro Area Community Empowerment Foundation (MACE) was
contracted for $75,000 for conference keynotes, wheelchair sports
exhibitions, motivational speaking and community events. Actual
payments of $10,000 were made in FY 2018.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, these payments are
questioned.

o

Bigger than Ball Foundation, Inc. was contracted to produce
“Bigger than Ball Moments” by well-known coaches and to offer
coaching clinics for a total of $62,500. Actual payments of $7,350
were made in FY 2018 and $4,439 were made in FY 2019 for a
total of $11,789. Contracts and agreements for these payments did
not offer any correlation to one of the TANF tenets or seek to verify
that there was any eligibility or programmatic reason for these
clinics.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, these payments are
questioned.

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o

Retired Pro Football Players Charitable Foundation, Inc. was
contracted for $75,000 to hold three (3) football camps for youth.
Actual payments of $44,625 were made in FY 2018. Contracts and
agreements for these payments did not offer any correlation to one
of the TANF tenets or seek to verify that there was any eligibility
or programmatic reason for these clinics.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, these payments are
questioned.

o

Northeast Mississippi Football Coaches Association was paid
$30,000 in FY 2019 for a sponsorship of the NEMFCA All-Star
game.
Due to the inability to verify any correlation to TANF, including a
programmatic reason for the payments, and the regulation noted
above that sponsorships are disallowed under federal regulations,
these payments are questioned.
Questioned costs for fiscal year 2018 – $61,975
Questioned costs for fiscal year 2019 – $34,439

Total amount questioned in 2017 – $65,000
Total amount questioned in 2018 – $1,233,975
Total amount questioned in 2019 – $313,539
Payments Directed by Former Executive Director
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.318(c)) states that no employee, officer
or agent of a grantee may participate in the selection, award, or administration of a
contract supported by a federal award if he or she has a real or apparent conflict of
interest. Conflicts of interest are defined as any instance when the officer, or agent,
any member of his or her immediate family, his or her partner, or an organization
which employs or is about to employ any of the parties indicated, has a financial or
other interest in or a tangible personal benefit from a firm is considered for a
contract supported by federal awards.
The Code of Federal Regulations (2 cfr 200.53(b)) states “Improper payment
includes any payment to an ineligible party, any payment for an ineligible good or
service, any duplicate payment, any payment for a good or service not received
(except for such payments where authorized by law), any payment that does not
account for credit for applicable discounts, and any payment where insufficient or
lack of documentation prevents a reviewer from discerning whether a payment was
proper.”

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Signed subgrant agreements between MDHS and the subgrantees state in Section
XXIX – Conflict of Interest - “Subgrantee must ensure that there exists no direct or
indirect conflict of interest in the performance of the Subgrant. Subgrantee must
warrant that no part of federal or state money shall be paid directly or indirectly to
an employee or official of MDHS as wages, compensation or gifts in exchange for
acting as an officer, agent, employee, subcontractor or consultant to the Subgrantee
in connection with any work contemplated or pertaining to the Subgrant.”
Section VI – Relationship of the Parties, states “It is expressly understood and
agreed that MDHS enters into this Subgrant with Subgrantee on a purchase of
service basis and not on an employer-employee relationship basis. Nothing
contained herein shall be deemed or construed by MDHS, the Subgrantee, or any
third party as creating the relationship of principal and agent, partners, joint
venturers, or any similar such relationship between MDHS and the Subgrantee.
Neither the method of computation of fees or other charges, nor any other provision
contained herein, nor any acts of MDHS or the Subgrantee hereunder, creates or
shall be deemed to create a relationship other than the independent relationship of
MDHS and the Subgrantee.
The MDHS Subgrant/Contract Manual, which subgrants must attest to have read
and understood prior to receiving grant awards, states in Section 6, under the
heading “Open and Free Competition” that “all procurement transactions shall be
conducted in a manner that provides maximum open and free competition consistent
with…applicable federal law. Procurement procedures shall not restrict or
eliminate competition…Examples of what is considered to be restrictive of
competition include, but are not limited to…noncompetitive contracts to
consultants that are on retainer contracts…organizational conflicts of interest.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted both MCEC and FRC often utilized the same
contractors and awarded grants to common subgrantees. In some instances, joint
contracts were issued under the “Families First” name, and in other instances,
contracts were issued by both entities for the same scope and time period. Based
on inquiry with the subgrantees and a review of documentation at MDHS, auditors
determined that former Executive Director JD often directed MCEC and FRC to
award contracts and grants to certain people or organizations. Contracts to these
individuals or organizations were not procured using any type of competitive
procurement and were not done in accordance with regulations defined in 2 cfr Part
200. Additional findings related to the procurement of these contacts can be found
in finding #2019 - 039. Due to the known conflict of interest, and inability to
determine if these contracts were reasonably priced due to lack of procurement and
the lack of arms-length bargaining, these contracts and grants are questioned as
described below.


Priceless Ventures, LLC and Familiae Orientem, LLC – A joint
contract between MCEC, FRC and Priceless Ventures (PV) was
structured under the name of “Families First of Mississippi” from June
1, 2017 through September 30, 2017. The scope of the contract
included Priceless Ventures, LLC and its owner serving as
“Leadership Outreach Coordinator” for the Families First Initiative

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cofounded by MCEC, FRC and MDHS. The contract was for
$250,000 and was to be paid evenly by MCEC and FRC. Due to the
overlapping scopes and time periods of all contracts made to PV by
MCEC and FRC, auditor cannot determine which payments were
made to satisfy specific contracts. The total amount paid will be
summarized below.
MCEC awarded additional contracts to Priceless Ventures, LLC and
its owner for leadership development and the administration of a selfhelp program called “Law of 16.”
According to “participant
workbooks” created by MDHS to help administer the program, the
program is a “model that is intended to help you understand - at a
greater level, yourself, your values, your significance, and your
potential.” MCEC awarded a “leadership training” contract from
October 1, 2018 to September 30, 2019 in the amount of $130,000 and
a contract for the self-help program from September 1, 2017 to August
31, 2018 in the amount of $130,000. In addition, MCEC paid for
conferences and advertising to promote the self-help program to
individuals and other state agencies. Travel expenditures for the
owner of PV were also paid by MCEC. Travel costs included first
class airfare, expensive meals, luxury hotels, and entertainment costs.
Conference and travel expenses are questioned in full in their
respective sections in this finding. Actual payments to Priceless
Ventures for MCEC totaled $500,000 in FY 2018 and $199,500 in FY
2019.
FRC also awarded contracts to PV from May 15, 2018 to September
30, 2018 in the amount of $500,000. The scope of the contract
included “leadership outreach” and Law of 16 programs.
Additionally, PV was awarded a contract from May 22, 2018 through
September 30, 2018 from SNAP funds for “emergency food
assistance.” According to inquiry with individuals at FRC, no work
was performed on this contract, but payment of $497,987 (SNAP
funds) was made in full to fulfill contract terms. FRC also reimbursed
travel expenses related to these contracts and those amounts are
questioned in full in its respective section of this finding. Actual
payments to Priceless Ventures for FRC totaled $1,643,820 in FY
2018 and $104,167 in FY 2019.
FRC also contracted with Familiae Orientem, LLC to conduct
strategic development on a program created by MCEC, FRC, and
MDHS called the “RISE Program.” The $1,000,000 contract was
from June 25, 2018 through June 24, 2019, and the two payments of
$350,000 in June 2018 and August 2018 on the contract were made to
the owner of PV, who is also an owner of Familiae Orientem.
According to inquiry with personnel at FRC, these payments were to
cover a program designed by Executive Director JD and the owner of
PV. JD directed these payments to be made before the program had
been designed, and required staff from FRC, MCEC and MDHS to
attend a “Legislative Launch” and “planning session” at the Westin
Hotel in June 2018. The terms of the contract stated that Familiae

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would secure, at its sole expense, all personnel required to implement
the agreement; however, based on documentation obtained from the
planning session referenced above, the personnel designated to carry
out the scope of the agreement were employees of FRC, MCEC and
MDHS. Inquiry with MDHS supports FRC’s claim that, shortly after
program launch, JD claimed the program would be taken “in house”
at MDHS and that FRC and MCEC would no longer be involved.
According to personnel at MDHS, the project was later abandoned.
Actual payments totaled $350,000 in FY 2018 and $350,000 in FY
2019.
Total amount paid by MCEC – $699,500
Total amount paid by FRC - $2,447,987
Above costs are questioned due to the direct involvement of MDHS
personnel; thereby, violating the “Conflict of Interest” regulations in
the MDHS Subgrant Manual. Additionally, auditor questions whether
the costs are reasonable in the performance of the federal award, or
whether the costs were made at arm’s length bargaining. Based on
documentation provided, auditor cannot verify that work defined in
the scopes of these projects was completed as MDHS did not properly
monitor these grants or request documentation to support payments.
Documentation obtained by auditor supports that no work was
performed on portions of these contracts, even though payments were
made in advance. Further, both FRC and MCEC contracted the same
individual for the same services over the same time period, which
indicate duplicative work charged to the federal grant. Finally,
contract or supporting documentation does not define population
served and whether it meets TANF eligibility criteria, nor can auditor
find evidence of any direct or indirect correlation to the third or fourth
tenets of TANF that do not require eligibility criteria.
Questioned costs for fiscal year 2018 – $1,995,833
Questioned costs for fiscal year 2018 – $497,987 (SNAP)
Questioned costs for fiscal year 2019 – $653,667


Heart of David Ministries (HOD) – MCEC donated $25,000 to HOD
in two separate transactions. These payments were coded as a
“sponsorship” and “contribution” in the accounting records, and no
contract or subgrant agreement was provided to auditors. One
payment of $15,000 was made in FY 2018 and one payment of
$10,000 was made in FY 2019. Auditor could find no invoice or
justification for these payments, nor was auditor provided any
subgrant or contract to support these payments as anything other than
donations.
MDHS awarded subgrants to HOD Ministries in FY 2017, 2018, and
2019. HOD Ministries mission focuses on the personal development
of young men, ages thirteen through nineteen. Programmatic material
for the awards is similar in design to PV, both featuring the acronym
“LYFE” or “Living Your Faith Extreme.” HOD is considered a faith

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based organization under federal standards. Grants to faith-based
organizations are allowed under TANF regulations; however, any
contract or grant agreement must include conditions to implement
restrictions on explicitly religious activities. Auditor could find no
such conditions in the contracts or subgrantee agreements made to
HOD. Additionally, these subgrants were made at the express
direction of former Executive Director JD, and the son of the
Executive Director of HOD was employed as a Deputy Administrator
at MDHS when the initial contract to HOD was awarded.
The 2017 subgrant, from May 1, 2017 through April 30, 2018, was for
$500,000; an additional subgrant, from May 1, 2017 through
September 30, 2018, was for $1,500,000. The FY 2019 subgrant, from
October 1, 2018 through December 31, 2019, was for $1,562,500.
Actual payments were $271,349 in FY 2017; $900,000 in FY 2018
and $756,224 in FY 2019. These costs are questioned in Finding
2019-032.
Above costs are questioned due to the direct involvement of MDHS
personnel; thereby, violating the “Conflict of Interest” regulations in
the MDHS Subgrant Manual. Additionally, auditor questions whether
the costs are reasonable in the performance of the federal award, or
whether the costs were made at arm’s length bargaining. Finally,
while subgrant includes a needs assessment with a loose correlation to
TANF, agreement does not define population served and whether it
meets TANF eligibility criteria. Agreement also fails to include
required certifications from a faith-based organization.
Questioned costs for fiscal year 2018 – $15,000
Questioned costs for fiscal year 2019 – $10,000


Lobaki Foundation – A joint contract between MCEC, FRC and the
Lobaki Foundation (Lobaki) was structured under the name of
“Families First of Mississippi” from September 1, 2018 through
August 30, 2019. The scope of the contract included forming a virtual
reality academy in which students would be taught how to create and
build virtual reality experiences. The initial cost of the academy was
$635,000 with payments to be split evenly between MCEC and FRC.
However, the entire contract sum was paid in a lump sum check by
FRC in September 2018.
MCEC entered into an additional agreement with Lobaki alone to
expand the initial contract for an additional $160,000. The entire
contract sum was paid in a lump sum check by MCEC in January
2019.
Auditors were not supplied any supporting documentation for the
initial contract by MCEC when requested, and reached out to the
Lobaki Foundation for information. According to Lobaki, the
academy was only contracted for a single two-semester course and
ended at the conclusion of those semesters. According to Lobaki, 60

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students graduated the academy at a cost of $13,250 per student.
There was no eligibility determination made by either FRC or MCEC
if the students enrolled in the academy were considered TANF
eligible.
Auditors were presented with email correspondence between MDHS
Deputy Executive Director of Programs (JB) and FRC in which FRC
is presented with the scope for the Lobaki project. When members of
FRC staff noted they had questions about the project, JB told FRC that
he had spoken with Lobaki, and that there was no need to discuss the
contract further. FRC was supplied a signed contract and pressed for
a timeline by MDHS. Additionally, auditors were presented with an
email from Executive Director JD informing Lobaki that he would
instruct “Families First” to wire transfer money to the Lobaki account,
and apologized the payments had been stalled.
Questioned costs for fiscal year 2019 – $795,000


Micah’s Mission School, Inc. – A joint contract between MCEC, FRC
and Micah’s Mission was structured under the name of “Families First
of Mississippi” from August 1, 2018 through July 31, 2019. The scope
of the contract only included a description of the school as an
“educational mission.” There was no description on what the grant
funds would be utilized, and no determination on the population that
would benefit. The school is a private school funded by fundraisers
and tuition. The initial contract was for $150,000, with FRC covering
costs in the first six months and MCEC covering costs in the second
six months of the contract. Actual payments for FY 2019 included
$50,910 in from FRC and $26,667 from MCEC for a total of $77,577.
Questioned costs for fiscal year 2019 – $77,577



Victory Sports Foundation – MCEC entered into a contract with
Victory Sports Foundation from October 1, 2018 through September
30, 2019 to conduct three 12-week fitness “bootcamps.” The contract
amount was for $1,394,831 and included fitness programs in three
separate counties. According to the supplied budget for the program,
the contract fee was to pay for the staff/coaches of Victory Sports, a
program design fee, equipment, onsite nurse, a $70,000 vehicle
purchase, $20,000 trailer purchase, marketing and various other costs
to administer the program. The materials provided did not indicate
that any fees would be charged to participants in the program.
However, review of documents received from Victory Sports
indicated that participants in the fitness camps paid a fee to attend, and
that no eligibility determination was made to verify participants were
TANF eligible or needy. Additionally, the fitness program was
offered to members of the Mississippi Legislature, other elected
officials, and other political staffers for no charge. Auditor could see
no evidence that participants of the program were aware that it was
funded in part by federal grant monies. Actual payments included
$1,309,183 in FY 2019.

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Questioned costs for fiscal year 2019 – $1,309,183


Fitness Program – FRC entered into a contract with an individual in
order to assess and make recommendations concerning physical health
and fitness components of Families Resource Centers of North
Mississippi. The contract scope also included assessing and making
recommendations for “growing feeding capacity in association with
the Rise program” in conjunction with Familiae noted above. Auditor
was not presented with a copy of the contract, but was provided the
scope of the contract. The scope was emailed to FRC from Executive
Director JD in June 2018. Actual payments on the contract totaled one
lump sum payment of $100,000 on June 26, 2018.
These costs are questioned due to the direct involvement of MDHS
personnel; thereby, violating the “Conflict of Interest” regulations in
the MDHS Subgrant Manual. Additionally, auditor questions whether
the costs are reasonable in the performance of the federal award, or
whether the costs were made at arm’s length bargaining. Finally,
contract or supporting documentation does not define population
served and whether it meets TANF eligibility criteria, nor can auditor
find evidence of any direct or indirect correlation to the third or fourth
tenets of TANF that do not require eligibility criteria.
Questioned costs for fiscal year 2018 - $100,000



SBGI, LLC – SBGI was contracted by FRC from August 1, 2017 to
July 31, 2018 to develop a “Center of Excellence” for Mississippi.
The contract states that the Center will support and empower youth,
whole families and veterans by aligning, optimizing and best
leveraging existing programs, resources, initiatives and facilities to
deliver the greatest outcomes and impact for individuals across
Mississippi. The entire contracted amount of $250,000 was paid in
one lump sum advance payment on August 28, 2017. Based on
inquiry from FRC, this project was never completed. According to
email correspondence from MDHS, the principal of SBGI was also
contracted to perform services for Heart of David.
These costs are questioned due to the direct involvement of MDHS
personnel; thereby, violating the “Conflict of Interest” regulations in
the MDHS Subgrant Manual. Additionally, auditor questions whether
the costs are reasonable in the performance of the federal award, or
whether the costs were made at arm’s length bargaining. Total
contract fee was also paid in advance, and there is not supporting
documentation to support that work was actually performed or
completed on this project. FRC did not provide any documentation to
support this payment other than the contract. Finally, contract or
supporting documentation does not define population served and
whether it meets TANF eligibility criteria, nor can auditor find
evidence of any direct or indirect correlation to the third or fourth
tenets of TANF that do not require eligibility criteria.

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Questioned costs for fiscal year 2018 - $250,000


Restore2/Recover2 – MDHS entered into a contract with Recover2,
LLC from December 10, 2018 to June 9, 2019 for opioid training for
MDHS employees. Recover2 is not registered as a business with the
Mississippi Secretary of State; however, Restore2 is a registered
business. All payments on the contract were made to Restore2, but
the contract was for Recover2. Auditors concluded the contract
contains a typographical error; however, it should be noted that
contracts with businesses that are not properly registered, even if result
of a typographical error, could not be considered legitimate contracts
in the State of Mississippi.
The contract amount was for $48,000 and included 24 “sessions” of
opioid training over the six-month period. The entire contracted
amount was paid from January 2019 through March 2019. Documents
provided to auditors and investigators at the Office of the State
Auditor revealed that the opioid trainings did not actually occur, and
in fact, the principal of Restore2 who supposedly conducted the
trainings was in a luxury rehabilitation facility in Malibu, CA at the
time of the contract – see additional questioned costs below related to
the payment of these services by MCEC. Evidence to support the
payments on the contract (invoices, sign in sheets, etc.) was
manufactured by individuals at MDHS. These payments were made
at the direction of Executive Director JD - who visited the
rehabilitation facility during the contract period, was aware the
trainings did not take place, and was involved in a conspiracy to
circumvent controls regarding these payments.
These costs are questioned due to the fraudulent nature of the contract
and the documentation that was fabricated to justify the payments.
Personnel at MDHS willfully and deliberately circumvented existing
controls in order to secure this contract and to assist in creating
fraudulent documents to ensure payment of the contract. It should be
noted that other MDHS employees reported suspicions about this
individual’s contract to those charged with governance, who then
alerted OSA to the possibility of fraud. OSA’s Investigative Division
began an investigation immediately after the suspected fraud was
disclosed. On February 5, 2020, Special Agents from OSA arrested
Executive Director JD, the owner and Director of MCEC (NN), the
Assistant Executive Director of MCEC (ZN), the accountant for
MCEC (AM), the owner of Restore2 (BD), and another former
employee of MDHS in connection with payments made to Restore2
and other payments made by MCEC (those payments are reflected in
the section “Personal Benefit” below). Additionally, travel connected
with these payments has been questioned under the section “Travel”
and payments to the luxury rehabilitation center have been questioned
below.
$48,000 in costs are questioned in Finding 2019-032

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

Rise in Malibu – Rise in Malibu (Rise) is a luxury rehabilitation clinic
located in Malibu, CA. The cost of the rehabilitation is $40,000
monthly, which includes the cost of treatment, room, and basic needs.
The owner of Restore2 (BD), who was a former employee of MDHS,
and Executive Director JD conspired to send BD to the facility for a
four- month treatment due to his addiction to narcotics. While there,
BD was under contract to conduct opioid addiction training classes to
MDHS staff, as well as employed by MCEC.
Executive Director JD and MCEC also conspired to use TANF funds
to pay for BD’s stay at Rise. Personnel from MCEC wired four
payments to Rise over a five-month period (February – June) of
$40,000 each. MCEC coded this transaction to “curriculum” and
named the facility “Rise-Malibu Training” in their financial records.
After OSA began inquiring about the use of TANF funds in July 2019,
the transactions were re-coded in the system to “consulting” and
assigned “Bingo” (MCEC’s private income source) as to the source of
funds. Regardless of the change in the system, TANF funds were used
to fund the luxury rehabilitation center.
Due to the personal nature of these expenses, the lack of any
correlation to TANF purpose or eligibility criteria, the lack of
reasonableness and the fraudulent nature of these expenditures, the
$160,000 paid to Rise is questioned.
Executive Director JD, BD, MCEC’s Director (NN), and MCEC’s
Assistant Executive Director (ZN) have been indicted and charged
with this alleged fraud and embezzlement.
Questioned costs for fiscal year 2019 - $160,000

Total amount questioned in 2018 – $2,858,820
Total amount questioned in 2019 – $3,005,427
Curriculum
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.445(a)) states costs of goods or services
for personal use of the entity’s employees are unallowable regardless of whether the
cost is reported as taxable income of the employees.
The Office of Family Assistance produced TANF-ACF-PI-2005-1 (Funding
Childhood Education, School Readiness, Kindergarten, and Other Public
Education Programs, published on April 14, 2005, clarifies the use of funds for
educational programs. Per the guide, “public education is a State responsibility;
therefore, States may not use Federal TANF for any educational activity that is a
component of the State’s system of free public schools. By charging the Federal

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government for any part of these costs, the State would be passing on to the TANF
program the costs of the State’s public education system…This prohibition applies
regardless of the adequacy of funding for general public education from other
sources.”
Title XX of the Social Security Act establishes the Social Services Block Grant
(SSBG). Services funded by SSBG must be directed at one or more of five (5)
broad statutory goals:
1) Achieving or maintaining economic self-support to prevent, reduce, or
eliminate dependency;
2) Achieving or maintaining self-sufficiency
3) Preventing or remedying neglect, abuse, or exploitations of children and adults
unable to protect their own interest or preserving, rehabilitating, or reuniting
families;
4) Preventing or reducing inappropriate institutional care by providing for
community based care, home-based care, or other forms of less intensive care;
and
5) Securing referral or admission for institutional care when other forms of care
are not appropriate.
The Office of Social Services Block Grant (SSBG) State Plan specifies that SSBG
funds will be utilized by the MDHS Division of Aging and Adult Services and the
MDHS Division of Youth Services. The State Plan specifies that a person is eligible
for SSBG funds only if they meet income eligibility criteria, and have an identifiable
need, unless the services are mandated services of serving children in the custody
and guardianship of the Department of Child Protective Services.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following questioned costs:


ActiveEd, Inc. – A joint Memorandum of Understanding (MOU)
between MCEC, FRC and ActiveEd was structured under the name of
“Families First of Mississippi” from July 1, 2018 through June 30,
2019. The purpose of the MOU was to order a pilot program of
kinesthetic learning using physical activity to teach Math,
English/Language Arts, and Literacy standards from pre-kindergarten
through second grade. The pilot program was designed for schools or
early childhood learning centers. The initial contract was for
$250,000, with FRC and MCEC equally dividing the cost of the
program. Actual payments for FY 2019 included one payment of
$125,000 from MCEC in July 2018 and one payment of $125,000
from FRC in August 2018.
Due to the inability to verify any stated correlation to TANF,
supporting documentation about the program, and the regulation noted
above that TANF money cannot supplant State’s educational
responsibilities, these payments are questioned.
Questioned costs for fiscal year 2019 - $250,000

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

Houghton Mifflin Harcourt – MCEC purchased $117,703 of
“curriculum” from Houghton Mifflin Harcourt during fiscal year
2019. The funds were coded to “Curriculum Expense” in the general
ledger, and the majority ($111,262) were paid with SSBG funds with
the remaining $6,441 paid with TANF funds. MCEC’s SSBG grant
request specifies an expense of $200,000 for “Curriculum and
Supplies”; however, a review of actual invoices indicated that the
curriculum purchased was used for the private school associated with
MCEC, and not for the community at large.
Due to the inability to verify that the goods and services purchased
were used to meet grant requirements, the lack of documentation to
verify an identifiable need or income eligibility, and the suspicion that
the goods and services were converted to personal use by MCEC,
these costs are questioned.
Questioned costs for fiscal year 2019 – $111,262 (SSBG)
Questioned costs for fiscal year 2019 – $6,441 (TANF)



Edmentum, Inc. – MCEC purchased $133,016 of “curriculum” from
Edmentum during fiscal year 2019. The funds were coded to
“Curriculum Expense” in the general ledger. Payments are for a
digital curriculum and a “response to intervention” program for 1,500
students over a three-year time span. The payments are divided into 5
payments, the first and second payment each for $66,508. Only two
payments were made as of June 30, 2019. Auditor could not verify
that purchases were made for curriculum for the community at large
and not the private school associated with MCEC.
Due to the inability to verify that the goods and services purchased
were used to meet grant requirements, the prohibition against
supplanting State educational responsibilities with TANF funds, and
the suspicion that the goods and services were converted to personal
use by MCEC, these costs are questioned.
Questioned costs for fiscal year 2019 - $133,016

Total amount questioned in 2019 – $500,719
Donations/Gifts/Sponsorships
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.434(a)) states the costs of contributions
and donations, including cash, property, and services from the grantee to other
entities are unallowable.

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The Code of Federal Regulations (2 cfr 200.469) states the costs of intramural
activities, student publications, student clubs, and other student activities are
unallowable, unless specifically provided in the Federal award.
The Code of Federal Regulations (2 cfr 200.403(e)) states that in order for costs to
be allowable under federal awards, they must be determined in accordance with
generally accepted accounting principles (GAAP).
GAAP includes the concept of “substance over form.” The substance over form
concept means that the transactions recorded in the underlying financial records
must reflect their economic substance rather than their legal form.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following questioned costs:


University of Southern Mississippi Athletic Foundation - In October
2017, MCEC signed a “sublease” with the University of Southern
Mississippi Athletic Foundation for $5,000,000 as “lease
prepayments” for rental of a multi-purpose wellness center on the
University’s campus. The lease’s term was for a five-year period from
October 26, 2017 until July 31, 2022. At the time of the signing of the
lease, the building had not yet been built, and the lease stated that the
$5,000,000 was to fund certain additions, alterations and renovations
to the new Wellness Center. The lease stated that MCEC would be
permitted to use other University property in lieu of the Wellness
Center until its construction was completed. The lease from the
Athletic Foundation was then transferred to the University of Southern
Mississippi (USM). The transfer of the lease was approved by the
Institutes of Higher Learning (IHL) Board in their October 2017 Board
Meeting. A review of the minutes of that Board Meeting state that the
funding for the sublease between MCEC and the Athletic Foundation
is from funding “via a Block Grant from the Mississippi Department
of Human Services.”
The facility was completed in December 2019, with USM expected to
begin to utilize the space in January 2020. Auditors inquired of USM
officials if MCEC utilized other University property, as described in
the lease. According to USM’s records, MCEC utilized the Reed
Green Coliseum one time for a Healthy Teens Rally on October 18,
2018. It is important to note that during the time of the “lease” to the
Athletic Foundation, the Director of MCEC (NN) served as a Board
Member to the Athletic Foundation.
The $5,000,000 was paid to USM Athletic Foundation in two equal
installments of $2,500,000 on November 6, 2017 and December 5,
2017.
When the lease from USM Athletic Foundation was viewed under
scrutiny, auditors determined that the substance of the $5,000,000
payment to USM is a donation to the USM Athletic Foundation for the
construction of the Wellness Center and not a lease of the property.

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The property was leased almost three years before its construction was
completed; the rent was prepaid in order to build the space; any
additional use of the property was limited to one occurrence in a threeyear period; and the revenue did not appear to be classified as rental
revenue on the USM Athletic Foundation form 990 (non-profit tax
return).
Questioned costs for fiscal year 2018 - $5,000,000


American Heart Association – MCEC funded various programs and
initiatives of the American Heart Association through donations and
sponsorships. The American Heart Association did not sign
subgrantee agreements and was not considered a contractor of MCEC.
Therefore, no reporting on the use of the funds was requested or
required. Actual payments included $35,000 in FY 2017; $36,500 in
FY 2018; and $24,000 in FY 2019 for a total of $95,500. As donations
and sponsorships are prohibited as an allowable cost, the payments are
questioned.
Questioned costs for fiscal year 2017 - $35,000
Questioned costs for fiscal year 2018 - $36,500
Questioned costs for fiscal year 2019 - $24,000



The Library Foundation of Madison – MCEC donated $35,000 for a
bookmobile/digital lab project in Madison County in June 2018.
Supporting documentation for the transaction consists of a donor form
wherein MCEC requested recognition on an engraved foundation
stone in exchange for the donation. As donations and sponsorships
are prohibited as an allowable cost, the payments are questioned.
Questioned costs for fiscal year 2018 - $35,000



Fannin Fabrication Company/Mississippi State Highway Patrol (MS
Hwy Patrol) – MCEC contracted and paid Fannin Fabrication
Company $28,186 to build a “Rollover Simulator.” Total cost was
paid in two equal installments of $14,093, one payment in FY 2018
and the second in FY 2019. The simulator was then donated to the MS
Hwy Patrol. Inventory records from the MS Hwy Patrol verify that
the two simulators are owned by the Patrol, and that one was donated.
As donations and sponsorships are prohibited as an allowable cost, the
payments are questioned.
Questioned costs for fiscal year 2018 - $14,093
Questioned costs for fiscal year 2019 - $14,093



Mississippi Military Family Relief Fund – MCEC donated $10,000 to
the fund in FY 2019. The transaction is coded to “Benevolence” in the
general ledger. The fund did not sign subgrantee agreements, and was
not considered a contractor of MCEC. Therefore, no reporting on the
use of the funds was requested or required. Actual payments included

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$10,000 in FY 2019. As donations and sponsorships are prohibited as
an allowable cost, the payment is questioned.
Questioned costs for fiscal year 2019 - $10,000


Financial records of MCEC show that on December 7, 2018 a $3,000
check was written to the bookkeeper of MCEC using TANF funds.
The payee in the financial records is left blank, and the copy of the
cashed check shows the payee as the bookkeeper. The check was
coded to “Seminars and Continuing Education” in the general ledger.
However, check stub contains hand written note that $3,000 cash was
given to Executive Director JD. Auditor was unable to verify the
purpose of the $3,000 payment; therefore, the amount is questioned.
Questioned costs for fiscal year 2019 - $3,000



MCEC paid $38,737 in small donations/sponsorships to various
Booster Clubs, races, foundations, student activity clubs, etc. during
FY 2019. As donations and sponsorships are prohibited as allowable
costs, these payments are questioned. Amounts paid over $1,000 are
detailed below:
o Speaker for Hattiesburg Rally $1,250
o Murrah High School – Sound of Perfection Band - $1,000
o Greater Pine Belt Community Foundation – Full time tutors $13,200
o Papa John’s Pizza of South MS – Parade Float - $2,500
o Canton Educational Foundation – $7,000
o Junior League of Jackson – Touch A Truck - $2,500
o National Guard Association of Mississippi – ½ of sponsorship $2,500
o National Strategic Planning and Analysis Research Center –
sponsorship of Cybernetic City - $2,500
Questioned costs for fiscal year 2019 - $38,737



FRC paid $16,680 in small donations/sponsorships to various Booster
Clubs, pageants, student activity clubs during FY 2019. These
payments are classified as “sponsorships” in the general ledger. As
donations and sponsorships are prohibited as an allowable cost, these
payments are questioned. Amounts paid over $1,000 are detailed
below:
o Tupelo High School Cross Country Booster Club – timing chips
and readers - $5,350
o Baldwyn Baseball – sponsorship - $5,000
o Mississippi Municipal League – sponsorship - $1,000
o Child Advocacy Center – sponsorship - $2,000
o Baldwyn High School Cheerleaders – sponsorship - $1,000
o Johnie E. Cooks Foundation Initiative – sponsorship - $1,000
Questioned costs for fiscal year 2019 - $16,680

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Total amount questioned in 2017 – $35,000
Total amount questioned in 2018 – $5,085,593
Total amount questioned in 2019 – $106,510
Publications
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.400 (g)) states that entities may not
earn or keep any profit resulting from federal financial assistance, unless explicitly
authorized by the terms and conditions of the award.
The Child Care and Development Block Grant Act (CCDBG) authorized CCDF
funds to be spent to achieve one of the following goals:
1) Protect the health and safety of children in child care,
2) Promote continuity of access to subsidy for low-income families,
3) Better inform parents and the general public about the child care
choices available to them, and
4) Improve the overall quality of early learning and afterschool
programs.
Participants in the CCDF program and recipients of the benefits must meet defined
eligibility criteria based on income and need.
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following questioned costs:


Bay View Funding/M&W Publishing (Bay View) – MCEC entered
into a four-year commitment with Bay View to purchase copies of the
book “Professional Grammar Simplified” in order to market and sell
the book to organizations to whom MCEC was affiliated. The books
were sold wholesale to MCEC, with the intent to resell for a profit.
During the commitment, MCEC and M&W Publishing entered into a
legal dispute. The dispute was settled in mediation, and MCEC
returned any unsold publication inventory to M&W Publishing.
Actual payments on the agreement totaled $905,000 in FY 2019.
Due to the unreasonable nature of the expenditure, the intent to profit
from the sale of the book in violation of Program Income regulations,
and the lack of any direct correlation to TANF, these funds are
questioned. Additionally, any legal fees paid in relation to these
questioned costs are also questioned. Legal fees were paid to two
separate law firms (Bradley Arant and Watkins & Eager) in the
amount of $10,212 in FY 2019.
Questioned costs for fiscal year 2019 – $915,212

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

Eli’s Christmas – MCEC purchased 2,600 copies of the children’s
book in January 2019 using funds from the Mississippi Community
College Board (MCCB) grant. These funds were pass-through CCDF
funds through MDHS. MDHS and MCCB had a Memorandum of
Agreement (MOA) to establish an Early Childhood Academy (ECA)
at participating community colleges. The purpose of the ECA was to
focus on preparing practitioners and parents to ensure children are
prepared for successful transition from Pre-K to K-12. The MOA
specifies that the ECA will provide professional development,
technical assistance and coaching for practitioners and assist with
Resource and Referral (R&R) Network offices around the state. R&R
offices serve to facilitate the referral of parents and providers, and to
assist members of the public for purposes of referral to an appropriate
agency/entity for resources. Additionally, the scope of the agreement
between MCEC and MCCB states that the work is to provide
coaching, training, professional development, etc. The scope does not
include any reference to providing materials to eligible children.
The author of the children’s book is also related to the principal and
owner of Restore2, LLC. Due to the relationship of Executive
Director JD, the owner of Restore2 (BD) and the principals of MCEC,
auditor cannot verify purchase was made at arm’s length bargaining
or in good faith.
Additionally, the scope of the projects does not include providing
books to children, nor do the agreements make any correlation to the
eligibility requirements of CCDF. Actual payments for the book
totaled $44,964 in FY 2019.
Questioned costs for fiscal year 2019 – $44,964 (CCDF)

Total amount questioned in 2019 – $960,176
Purchases of Real Property/Construction/Assets
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.311(c)) states that real property that is
purchased using federal funds must be used for as long as it is needed for the original
purpose, and that the entity must not dispose or encumber its title or other interests.
Further, when property is to be disposed, the entity must obtain disposition
instructions from the federal awarding entity or pass through entity, and must
provide for one of the following: Entity may
1) Retain title after compensating the federal awarding agency,
2) Sell the property and compensate the federal awarding agency, or
3) Transfer title to the federal awarding agency or an approve third party.
The Code of Federal Regulations (2 cfr 200.439 (b)) states, “The following rules of
allowability must apply to equipment and other capital expenditures: (1) Capital

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expenditures for general purpose equipment, buildings, and land are unallowable as
direct charges, except with the prior written approval of the Federal awarding
agency or pass- through entity. (2) Capital expenditures for special purpose
equipment are allowable as direct costs, provided that items with a unit cost of
$5,000 or more have the prior written approval of the Federal awarding agency or
pass-through entity. (3) Capital expenditures for improvements to land, buildings,
or equipment which materially increase their value or useful life are unallowable as
a direct cost except with the prior written approval of the Federal awarding agency,
or pass-through entity.”
Decision of the Comptroller General of the United States, 42 Comp. Gen. 480
(1960) reiterates that a State may not use TANF funds to construct or purchase
buildings, or facilities or to purchase real estate. Additionally, the guide “Q&A:
Use of Funds, TANF Program Policy Questions and Answers” produced by the
Office of Family Assistance states that this prohibition also applies to grantees and
subrecipients including counties, nonprofit agencies, and contractors.
The MDHS Subgrant/Contract Manual states in Section 7, that “all property and
assets purchased through MDHS subgrants shall be placed on inventory in
accordance with the statutes of the State of Mississippi and the rules set forth in the
State Property Officers Manual.”
Additionally, the manual states that all equipment purchased with subgrant monies
must be specifically authorized through the Cost Summary and Budget Narrative
portions of the subgrant agreement, and that any deviation requires a formal
modification of the subgrant. The manual also states that any means of acquiring
property shall be reviewed before any authorization by MDHS is given.
Regarding property inventory, the manual details the following property inventory
regulations:
Cameras, Televisions, Computers – Any item $250 or over should be reported to
MDHS on an Inventory Control Sheet, listed on MDHS inventory, and marked with
a “Property of MDHS Sticker”
Weapons, Two-Way Radios Equipment, Lawn Maintenance Equipment, Cellular
Telephones, Chain Saws, Air Compressors, Welding Machines, Generators,
Motorized Vehicles – Must be reported to MDHS on an Inventory Control Sheet,
listed on MDHS inventory, and marked with a “Property of MDHS sticker”
regardless of price.
All other items purchased for over $1,000 with a useful life of over one
year - Must be reported to MDHS on an Inventory Control Sheet, listed on MDHS
inventory, and marked with a “Property of MDHS sticker”
MDHS is responsible for conducting a periodic physical inventory of each
subgrantee at least twice yearly, using the inventory control list submitted to
MDHS. The manual also states that any property or equipment that is not being
utilized or managed under the terms of the subgrant agreement and manual shall be
recovered and redistributed. Lastly, the manual states that if a subgrant is
terminated or not renewed, any equipment purchased under the subgrant with public

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funds or MDHS funds shall neither be transferred to another location nor remain at
the present location under a new subgrant without prior written approval of the
MDHS Executive Director, and that MDHS has the authority to recover the value
of any missing property via demand on the head of the subgrantee agency, property
officer or employee.
Exceptions/Questioned Costs: Auditor initially used sampling techniques to audit
equipment purchased with grant funds; however, the inadequate level of record
keeping and incomplete inventory logs required additional procedures. In addition,
due to the high risk of fraud, waste, and abuse assigned to subgrantees based on
initial testwork, further types of auditing methodology were used. The results below
encompass questioned costs under each testing method.
During testwork for activities allowed and allowable costs, the auditor noted the
following:


MD Foundation – MCEC entered into an agreement with MD
Foundation for a sum of $371,000 on January 1, 2018 for “Equine
Assisted Learning” and “Equine Assisted Activities”. The agreement
does not have an expiration date and does not specify who the services
will benefit, other than to state that individuals with mental or
emotional disabilities benefit from equine training overall. On
February 26, 2018, the owner of MD Foundation was paid $171,000.
The transaction is classified as “Rent” in the underlying accounting
records. Auditor was provided a general ledger by MCEC; however,
that showed this payment coded to “Contractual Services” indicating
that MCEC edited the general ledgers before supplying them to
auditors. In both instances of recordkeeping, the payment was made
from TANF funds.
On April 13, 2018, MD Foundation purchased a residence with
acreage in Flora, MS for a purchase price of $855,000. The loan
amount for the purchase was for $684,000, $171,000 less than the
purchase price. A down payment of $169,096 was made on the
residence. Based on observation and inquiry, the residence appears to
be the personal residence of the Director and Owner of MD
Foundation.
MCEC paid an additional $200,000 directly to the bank that holds the
note on the residence, and, on June 1, 2018, the residence was
refinanced for a total of $484,895. The check is coded to “Consulting”
in the general ledger. This payment was also made from TANF funds.
MCEC also guaranteed the residence through the bank with a six-year
lease from April 1, 2018 through March 31, 2024. The lease was for
the property in Flora purchased by MD Foundation and included
$684,000 in lease payments at $9,500 monthly. The purpose of the
lease was to operate a “multi use facility” at the residence. According
to information in the Guaranty, the MCEC Board of Directors
approved the Guaranty at a Board Meeting held on April 13, 2018.
The Guaranty was signed by the Director of MCEC. Auditors could

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find no record of a Board Meeting held on that date during a review
of the Board Minutes of MCEC and found no record of the Board
Members approving a Guaranty in any provided Minutes.
Additionally, MCEC later confirmed to auditor that no meeting was
held on April 13, 2018. The Director of MCEC (NN) also personally
guaranteed the loan of the residence.
When auditors inquired of MCEC about payments made to MD
Foundation and any payments made on the property in Flora,
personnel at MCEC did not provide consistent answers. Initially, the
Director of MCEC (NN) told auditors in November 2019 that MCEC
had given MD Foundation a subgrant for equine learning, mentoring,
and youth development activities, and that they had made only one
payment of $171,000 to the foundation. In March 2020, Auditors then
inquired about payments to MD Foundation again and were told on
March 27, 2020 that MD Foundation was paid $171,000 for equine
learning. They were also told MCEC had no involvement with the
residence in Flora and that no payments were ever made on the
$684,000 lease used to guarantee the property. MCEC stated that the
loan was to be modified in July 2018 to remove the guarantee. On
March 31, 2020, MCEC stated that they contracted MD Foundation in
January 2018 for $371,000 for programmatic services and that a lease
was executed in February 2018 for $9,500 monthly payments and that
MCEC paid $200,000 directly to the Bank for lease payments. MCEC
stated that MD Foundation began programmatic services in April
2018, and that the lease terminated December 31, 2019.
Based on information provided over the course of the audit, MCEC
asserts it paid $171,000 for equine learning services in February 2018
to be held on property that was not yet owned by MD Foundation.
This payment was made in a lump sum advance, and services did not
commence until April 2018. Additionally, MCEC paid $200,000 in
lump sum, advance rental payments in order to lease the same property
for use as a multi-use building. Based on fact patterns and documents
reviewed, auditors believe that the initial payment of $171,000 was
used by MD Foundation to secure the residence at the closing of the
initial loan. MCEC and MD Foundation then refinanced the residence,
and MCEC contributed another $200,000 to the purchase of the
residence; thereby, using $371,000 of TANF funds to secure a
personal, private residence for the Director and Owner of MD
Foundation.
It should be noted that the Director and Owner of MD Foundation was
also employed by MCEC from July 17, 2017 until September 30, 2019
at an ending annual salary of $130,000. MCEC stated that he was
employed as a “community liaison” during this time. MCEC paid
$198,846 in salary payments and fringe benefits during this time
period. Refer to “Salaries” section of this finding for the amount
questioned for these salary payments.

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MD Foundation was also paid $3,100 in travel reimbursements in FY
2018 and payments of $2,700 for “loans” in FY 2019.
Due to the prohibition against using federal funds for personal use, the
prohibition of purchasing real property with TANF funds, and the
unreasonableness of these purchases, the payments to MD Foundation
are questioned in full.
Questioned costs for fiscal year 2018 – $374,100
Questioned costs for fiscal year 2019 – $2,700


MCEC paid a contractor $134,880 in FY 2019 to demolish and
renovate space at the North State Families First location. Due to the
prohibition of using TANF funds to renovate real property, these
purchases are questioned.
Questioned costs for fiscal year 2019 – $134,880



Both MCEC and FRC purchased items that meet the thresholds in the
MDHS Subgrantee Manual for inclusion on the “Physical Property
Inventory” and did not report these items to MDHS, as required by
subgrant requirements. These items included cell phones, televisions,
equipment, etc. Since the items were never reported to MDHS, they
were not listed on the Inventory Control Sheets and were not properly
examined in a physical inventory of MDHS. Auditor attempted to
examine physical property inventory at both locations. Inventory
could not be verified at MCEC due to inadequate tracking and lack of
identifiable information on assets and invoices, i.e. serial numbers.
Property inventory was able to be verified at FRC due to adequate
tracking and property listings.



MCEC purchased three vehicles using MDHS grants funds –
o 2018 Armada for $52,257 in October 2018 – While the vehicle is
registered to MCEC, the address for the purchase of the tag is the
residence of the Director of MCEC (NN) indicating personal use
of the vehicle.
o Big Country Silverado Chevrolet Truck for $59,840 in September
2017 – While the vehicle is registered to MCEC, the address for
the purchase of the tag is the residence of Assistant Executive
Director of MCEC (ZN) indicating personal use of the vehicle.
o F250 Ford Truck for $54,221 in November 2018 – While the
vehicle is registered to MCEC, the address for the purchase of the
tag is the residence of Director of MCEC’s son (JN), indicating
personal use of the vehicle. This individual is not employed by
MCEC.
o MCEC also paid $6,584 in for maintenance contracts, repairs, and
other costs associated with the vehicles in FY 2019.
Through inquiry and observation, auditor determined these vehicles
were treated as the primary vehicles for the Director of MCEC (NN),

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the Assistant Executive Director of MCEC (ZN) and the son of the
Director of MCEC (JN). Due to the vehicles personal use, lack of any
discernable allocation of the costs of the vehicles based on use, the
reasonableness of purchase, and the lack of adherence to policies as
described in the subgrant manual, these costs are questioned in full.
Questioned costs for fiscal year 2018 – $59,840
Questioned costs for fiscal year 2019 – $113,062


Out of eight items of equipment purchases sampled at FRC, auditor
noted:
o Purchase of two vehicles, one for $50,415 and one for $27,749.
The vehicles were purchased with entirely TANF funds. Auditor
verified that vehicles were not used only for TANF purposes and
that they were sometimes used for personal use.
o Purchase of $27,093 in computer equipment. The equipment was
purchased with MDHS grant funds.
o Purchase of networking equipment for a total of $8,055. The
equipment was purchased with MDHS grant funds.
o Purchase of an air conditioning unit for $2,798, which is classified
as “real property” under the federal grant.
Due to improper allocation of costs and no appropriate underlying
allocation methodology, and lack of adherence to the policies as
described in the subgrant manual, the costs are questioned. Due to the
auditor’s inability to calculate proper allocation due to insufficient
documentation, the cost is questioned in full.
Questioned costs for fiscal year 2019 – $116,110


Out of 100 items of equipment purchases sampled at MCEC,
auditor noted:
o Nine (9) items for a total of $2,334 in which MCEC could
not provide documentation to support the expenditure.
o Six (6) items for a total of $924 in which auditor could not
find any correlation to the objectives of the TANF
program for the equipment purchase.
o Eighty-four (84) items for a total of $31,758 in which
auditor could not determine item was used exclusively for
the TANF program and/or what percentage of the items’
use was appropriate, reasonable and necessary for the
TANF program.

Due to lack of supporting documentation, improper allocation of costs
and no appropriate underlying allocation methodology, and lack of
adherence to the policies as described in the subgrant manual, the costs
are questioned. Due to the auditor’s inability to calculate proper
allocation due to insufficient documentation, the cost is questioned in
full.

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Questioned costs for fiscal year 2019 – $35,016
Total amount questioned in 2018 – $433,940
Total amount questioned in 2019 – $401,768
Faith-Based Initiatives/Concerts
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (45 cfr 260.34(c)) states, “No Federal TANF or
State MOE funds provided directly to participating organizations may be expended
for inherently religious activities, such as worship, religious instruction, or
proselytization. If an organization conducts such activities, it must offer them
separately, in time or location, from the programs or services for which it receives
direct Federal TANF or State MOE funds under this part, and participation must be
voluntary for the beneficiaries of those programs or services.”
The Code of Federal Regulations (2 cfr 200.438) states, “Costs of entertainment,
including amusement, diversion, and social activities and any associated costs are
unallowable, except where specific costs that might otherwise be considered
entertainment have a programmatic purpose and are authorized either in the
approved budget for the Federal award or with prior written approval of the Federal
awarding agency.”
Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following:


Under the “Families First” initiative, both MCEC and FRC funded concerts of
a faith-based, evangelical worship singer in FY 2018 and FY 2019. Payments
were made to the singer individually and the organization “Through The Fire
Ministries”. The singer performed at rallies and performed concerts in
churches in Mississippi. Auditors did not have a copy of the contracts
associated with the payments. Actual payments included $1,050 paid in FY
2018 by FRC and $180,350 in FY 2019 ($85,400 paid by MCEC and $94,950
paid by FRC).
MCEC also expended $3,783 in identifiable expenditures in conjunction with
the concerts, including paying for meals, security, and an opening choir
performance.
Due to the prohibition against paying for entertainment costs of inherently
religious activities such as worship, the lack of any correlation to TANF
purpose, and the unreasonableness of the cost, these costs are questioned.
Questioned costs for fiscal year 2018 – $1,050
Questioned costs for fiscal year 2019 – $184,133

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

MCEC contracted with Sonshine Leadership, LLC to develop faith-based
coalitions. One of the stated activities of the agreement was to “develop a
prayer team for Mayors” and to receive and connect prayer requests to faithbased coalitions. Due to lack of supporting documentation, auditor cannot
verify that work performed under the contract could not be categorized as
“inherently religious” and therefore, the costs are questioned.
Questioned costs for fiscal year 2019 – $61,826

Total amount questioned in 2018 – $1,050
Total amount questioned in 2019 – $245,959
Marketing/Branding/Advertising/Promotional Materials
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.438(b)) states, in part, “the only
allowable advertising costs are those which are solely for…program outreach and
other specific purposes necessary to meet the requirements of the federal award.”
The Code of Federal Regulations (2 cfr 200.438(d)) states, in part, “the only
allowable public relations costs are costs specifically required by the federal award,
costs of communicating with the public and press pertaining to specific activities or
accomplishments which result from the performance of the federal award, and costs
of conducting general liaison with news media and government public relations
officers, to the extent that such activities are limited to communication and liaison
necessary to keep the public informed on matters of public concern, such as notices
of funding opportunities, financial matters, etc.”
The Code of Federal Regulations (2 cfr 200.438(e)) states, in part, “Unallowable
advertising and public relations costs include the following: (1) All advertising and
public relations costs other than as specified in paragraphs (b) and (d); (2) Costs of
meetings, conventions, convocations, or other activities of the entity including costs
of displays, demonstrations and exhibits; costs of meeting rooms, hospitality suites,
and other special facilities used in conjunction with shows and other special events;
and salaries and wages of employees engaged in setting up and displaying exhibits,
making demonstrations and providing briefings. (3) Costs of promotional items and
memorabilia, including models, gifts, and souvenirs; (4) Costs of advertising and
public relations designed solely to promote the non-federal entity.
The Code of Federal Regulations (2 cfr 200.422) states, “Costs incurred by advisory
councils or committees are unallowable unless authorized by statute, the Federal
awarding agency or as an indirect cost where allocable to Federal awards.”
The MDHS Subgrant Agreement states in Section 9, under the heading “Compliance
with Laws, Rules and Regulations” that any advertisements, brochures, flyers or
produces any other material, printed or otherwise, relating to, or promoting, the
services which is provided through the subgrant, it shall acknowledge that MDHS
provided funding for the services.

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Exceptions/Questioned Costs: During testwork for activities allowed and
allowable costs, the auditor noted the following:


Under the “Families First” initiative, MCEC and MDHS were provided
branding, public relations, print media and advertising from the Cirlot Agency.
Auditor was not provided a contract for these services, but was provided a
“Families First for Mississippi Financial Update” from November 2019 that
detailed the scope of work performed for MDHS, Family First Initiative and
Families First Mississippi. The update stated that $1,199,310 had been billed
for services, and was broken down as follows (Numbers below are copied
verbatim from the invoice. Breakdown summary does not equal the total by
category, and the amounts do not equal the amount billed. Errors in addition
remain unchanged intentionally):
o Families First for MS – $292,718
 Collateral $17,919
 Fundraising $61,974
 Public relations - $10,576
 Strategic Planning - $63,489
 Video Production - $63,698
 Website - $75,064
o Family First Initiative – $298,310
 Summit Materials and Planning - $124,114
 Strategic Planning - $54,805
 Pilot Programs - $100,884
 Steering Committees - $10,751
 Website - $7,756
o Mississippi Department of Human Services - $608,088
 Video Production - $247,111
 Strategic Planning - $42,732
 Branding and Positioning - $169,626
 Law of 16 Events - $113,037
 Public Relations - $6,539
 Analytics - $29,043
Actual payments made by MCEC for the services included $206,000 in FY
2017, $369,438 in FY 2018 and $1,152,470 in FY 2019 for a total of
$1,727,908, which does not agree with the summary provided to auditors.
Auditors could find no record of payments made to Cirlot by MDHS directly.
Based on inquiry with MDHS personnel, MCEC requested reimbursement for
expenditures paid on their behalf based on a verbal “promise to pay” from
Executive Director JD. MDHS, under the subsequent Executive Director
(CF), denied any reimbursement request. However, MCEC still used TANF
funds to pay for the services.
Auditors, when possible with supporting documentation, viewed copies or
video of advertising made in conjunction with this agreement. Auditors were
not able to view all materials, however, due to lack of documentation.
Auditors determined that promotional materials and advertising did not
consistently abide by restrictions in the MDHS subgrant to include MDHS as
a funding source, and did not consistently correlate advertisements to

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programmatic resources. Much of the advertising was designed to solely
benefit MCEC and its nonprofit and not programs offered. Additionally,
advertising was not appropriately allocated among different subgrants.
Finally, some items charged by Cirlot are specifically prohibited in federal
regulations (steering committees, promotional materials, fundraising) and
should not have been paid by federal monies. Auditor also questions the
reasonableness of the cost of services. Due to these reasons, the costs paid to
Cirlot are questioned in full.
Questioned costs for fiscal year 2017 – $206,000
Questioned costs for fiscal year 2018 – $369,438
Questioned costs for fiscal year 2019 – $1,152,470


MCEC entered into contractual agreements to advertise and sponsor NCAA
college sporting events at Mississippi State University. Invoices for payments
made to IMG College, LLC/Learfield indicate that the advertisements were at
college football, basketball, and baseball games. In addition, advertising was
also done for NCAA Final Four Championships and Bowl Games held out of
state. In at least one instance, TANF grant funds were used to purchase tickets
to a college football game. Total payments included $195,163 in FY 2018 and
$121,393 in FY 2019 for a total of $316,556.
Due to the unreasonableness of providing advertising for programs designed
for the needy at college sporting events, lack of adherence to stipulations in
the grant agreement, and the lack of any correlation to how the advertising
benefited the programmatic nature of the TANF program, these costs are
questioned.
Questioned costs for fiscal year 2018 – $195,163
Questioned costs for fiscal year 2019 – $121,393



MCEC and FRC entered into contractual agreements to advertise with radio
stations owned by Telesouth Communications. Invoices for payments indicate
that the advertisements were for promotional campaigns, fundraising, and
programmatic functions. The advertisements were sold in a “marketing
package” whereas the price of the contract was billed in installments. Due to
the packaged nature of the invoices and advertising, auditors cannot determine
which costs should be allocated to programmatic functions and which charges
were for advertising that solely benefited the entity.
Payments included $57,950 in FY 2017, $49,886 in FY 2018, and $220,560 in
FY 2019 for a total of $328,396 from MCEC.
Payments included $36,680 in FY 2017, $53,721 in FY 2018, and $213,521 in
FY 2019 for a total of $303,922 from FRC.
Due to the unreasonable cost of the advertising, lack of adherence to
stipulations in the grant agreement, inability to allocate costs of allowable and
unallowable payments, and the lack of any correlation to how the advertising

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benefited the programmatic nature of the TANF program, these costs are
questioned.
Questioned costs for fiscal year 2017 – $94,630
Questioned costs for fiscal year 2018 – $103,607
Questioned costs for fiscal year 2019 – $434,081


Both MCEC and FRC utilized iPromoteU to provide promotional gifts and
“swag” for conferences, booths, etc. These items were often branded as
“Family First” and failed to denote that funds used for the cost of the items
were from MDHS, as required by the subgrant agreement. Additionally, these
items are prohibited as unallowable costs. Payments were made primarily
from TANF funds, but CCDF and SSBG funds were also utilized as noted
below.
Payments included $23,569 in FY 2017, $94,789 in FY 2018, and $49,613 in
FY 2019 for a total of $167,971 from MCEC.
Payments included $3,137 in FY 2017, $11,197 in FY 2018, and $3,842 in FY
2019 for a total of $18,176 from FRC.
Questioned costs for fiscal year 2017 – $26,706
Questioned costs for fiscal year 2018 – $105,393
Questioned costs for fiscal year 2018 – $593 (SSBG)
Questioned costs for fiscal year 2019 – $52,455
Questioned costs for fiscal year 2019 – $1,000 (CCDF)



MCEC purchased additional advertising, marketing and promotional materials
in FY 2019. Auditors sampled the remaining population of expenses classified
as “Advertising” in the entities general ledgers. Auditors examined the
invoices of nine additional advertising charges. When available, auditors
viewed copies of the actual advertisements to determine what, if any,
programmatic content was advertised. Auditors found that MCEC did not
properly identify MDHS as the source of the funds nor did the advertising have
a correlation to the TANF program. Sampled items totaled $13,090. Items are
detailed below:
o Clarion Ledger - $70 for digital ads
o WONA radio station - $120 for ads
o Ridgeland Chamber of Commerce - $40 for luncheon
o Area Development Partnership - $250 for ad
o House of Peace - $75 for pastor, minister, and leader conference
o Busby Companies - $498 for billboards
o WAPT - $12,037 for ads
Questioned costs for fiscal year 2019 – $13,090



FRC also had additional advertising expenditures; however, due to the
inconsistency in how FRC accounting personnel coded expenses in the
General Ledger, auditors could not perform a targeted sample of advertising

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expenditures. Any advertising expenditures sampled in the general population
are discussed in the Section “Other Auditing Results” of this finding.
Total amount questioned in 2017 – $327,336
Total amount questioned in 2018 – $774,194
Total amount questioned in 2019 – $1,774,489
Second Tier Subrecipients/Programmatic Subgrants
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.469) states the costs incurred for
intramural activities, student publications, student clubs, and other student
activities, are unallowable, unless specifically provided for in the Federal award.
The Office of Family Assistance produced TANF-ACF-PI-2005-1 (Funding
Childhood Education, School Readiness, Kindergarten, and Other Public
Education Programs, published on April 14, 2005, clarifies the use of funds for
educational programs. Per the guide, “public education is a State responsibility;
therefore, States may not use Federal TANF for any educational activity that is a
component of the State’s system of free public schools. By charging the Federal
government for any part of these costs, the State would be passing on to the TANF
program the costs of the State’s public education system…This prohibition applies
regardless of the adequacy of funding for general public education from other
sources.”
The MDHS Subgrant Agreement states in Section 5, under the heading
“Documentation Requirements” that “Source documents are required to support
transactions entered into the subgrantees’ record keeping system. The following is
a list of the minimum documentation required for selected transaction types:


Salaries & Fringe - Benefits Personnel files which include a job
application or resume, IRS W-4 Form, State Tax withholding form, I9 Form (if hired after May 1987), e-verify confirmation, date of hire,
and current approved salary/wage. Time distribution/activity sheets
are required when the employee’s time is charged to more than one
subgrant or activity. Time sheets and activity reports should reflect the
actual hours worked and duties performed.



Travel - An approved travel voucher showing that all travel expenses
were incurred for the benefit of the subgrant; copies of supporting bills
including out-of-state meal receipts, hotel bills, conference
registration fee receipts, and conference agendas.



Telephone - Complete telephone bills and long distance telephone
logs that indicate the person calling, the person called, the date and
time of the call, the reason and purpose of the call, the number called,
and the subgrant that benefitted from the telephone call.

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

Equipment - Original vendor invoices, receiving reports, purchase
orders, competitive quotes or proof of newspaper advertisements for
bids (if applicable), property records, and authorization to purchase
equipment, and any other documentation necessary for purchasing law
conformity. All purchases of equipment must be made in accordance
with state purchasing requirements.



Commodities (Supplies) - Original vendor invoices, receiving reports,
purchase orders, competitive quotes or proof of newspaper
advertisements for bids (if applicable), and documentation the
expenses were incurred for the benefit of the subgrant.



Contractual Services - Original contracts for services charged to the
subgrant, evidence of completion of contracts, billings for services,
rental or lease agreements, competitive quotes or proof of newspaper
advertisements for bids (if applicable), or documentation of fair
market value.



Subsidies, Loans & Grants - (Payments to/for clients) Client
attendance records, documentation of services provided, including
dates, times, names, and client signatures, or documentation to verify
units of service provided.



Other Direct Costs - Original vendor invoices, receiving reports,
purchase orders, competitive quotes or proof of newspaper
advertisements for bids (if applicable), and documentation the
expenses were incurred for the benefit of the subgrant.

Exceptions/Questioned Costs: Both MCEC and FRC awarded subgrants to
“second tier subrecipients” during the grant period.
Auditor reviewed
programmatic scopes, payment requests, and supporting documentation to
determine if agreements were made in accordance with provisions of Uniform Grant
Guidance, grant regulations and restrictions, the initial subaward from MDHS, and
whether the documentation adhered with the MDHS Subgrantee Manual. During
this review, auditor found the majority of subgrantees of MCEC and FRC were not
appropriately monitored, and that MCEC/FRC did not supply appropriate
documentation for reimbursements or had inappropriate project narratives, scopes,
etc. Most of the subgrant “packets” examined did not contain any type of
correlation to the federal award objectives, nor did they contain client attendance
records or documentation of the services provided. Many of the projects funded
with appropriate scopes appeared to have performed work; however, documentation
supporting that work was not sufficient for auditor to determine if it met the
requirements to be allowable under the federal award. Additionally, while some of
the projects may have community value and be considered worthwhile endeavors,
auditor could not determine, from information provided, if the project/subgrant was
a reasonable use of TANF, CCDF or SNAP resources, or if the program was limited
to those defined as “needy” in both State or Federal regulations. It should be
reiterated that, due to MCEC and FRC failing to denote on grant agreements that
monies supplied were funded from federal programs such as TANF, second tier
subrecipients could have not been aware of program restrictions and regulations.
Based on these criteria, auditor has included these as questioned costs.

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

MCEC Subgrantee agreements did not contain scopes or projects, nor did
they entail how the programs would benefit needy individuals, or the
correlation to TANF. In some instances, auditor was provided copies of
grants/contracts for prior years and in some instances, auditors were only
provided current year agreements. While some payments below appear to
exceed grant awards, auditors were only provided contracts for FY 2019,
and it is possible FY 2018 agreements existed that allowed for additional
monies to be spent. Contract dates also spanned multiple fiscal years;
therefore, information regarding FY 2018 and FY 2019 are presented as
questioned costs.
o
o

o
o

o

o

o

o
o

o

o

o

o
o

Belhaven University – Granted $250,000 for Leadership
Development. Actual payments in FY 2019 were $236,023.
Delta State University – Granted $700,002 over a two- year period.
Scope unknown. Actual payments in FY 2018 were $238,796; and
$344,807 in FY 2019.
Friendship Connection – Granted $35,000. Scope unknown.
Actual payments totaled $35,000 in FY 2019.
Greenwood Community and Recreation Center – Granted $35,000.
Scope unknown. Actual payments in FY 2018 totaled $62,166; and
$43,891 in FY 2019.
Gulf Coast Community Foundation – Granted $55,250. Scope
unknown. Actual payments in FY 2018 totaled $82,167; and
$36,883 in FY 2019.
Jackson County Civic Action Agency – Granted $75,000 for
‘Youth development and mentoring’. Actual payments in FY 2018
totaled $194,554; and $124,215 in FY 2019.
Juanita Sims Doty Foundation – Granted $1,000,000 over a twoyear period. Scope unknown.
Actual payments in FY 2018
totaled $688,864; and $368,291 in FY 2019.
Kid’s Hub – Granted $72,464. Scope unknown. Actual payments
in FY 2018 totaled $41,120; and $45,309 in FY 2019.
Meridian Community College – Granted $100,000. Scope
unknown. Actual payments in FY 2018 totaled $36,672; and
$96,022 in FY 2019.
Mississippi Gulf Coast Community College – Granted $274,314
for ‘Training for middle skill job opportunities’. Actual payments
in FY 2019 totaled $62,905.
Mississippi Offender Re-Entry Program – Granted monies to
establish a re-entry program for the Oakley Training Facility.
Contract did not include an amount of funds granted. Actual
payments for FY 2019 totaled $301,000.
Pearl River Community College – Granted $260,193 for
‘Encourage work ready credentials or HSE diploma’. Actual
payments for FY 2018 totaled $10,759; and $182,942 in FY 2019.
Phoenix Project – Granted $45,000. Scope unknown.
Actual
payments in FY 2018 totaled $195,696; and $73,821 in FY 2019.
Picayune School District – Granted $50,000. Scope unknown.
Actual payments in FY 2018 totaled $131,005; and $97,014 in FY
2019.

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o

o

o

o

Restoration Foundation – Granted $30,000 for addiction services.
Actual payments for FY 2018 totaled $27,479; and $24,823 in FY
2019.
Soul City Hospitality - $200,000 subgrant to create a community
garden and to educate youth about sustainable agriculture. Actual
payments totaled $200,000 in FY 2019.
Tulane Missionary Baptist Church – Granted $25,000. Scope
unknown. Actual payments in FY 2018 totaled $9,551; and
$53,408 in FY 2019.
Voice of Calvary – Granted $42,000 for ‘The Net Counseling and
Mentoring’ services. Actual payments totaled $7,128 in FY 2018
and $30,948 in FY 2019.

Questioned costs for fiscal year 2018 – $1,725,957
Questioned costs for fiscal year 2019 – $2,357,302


FRC Subgrantee agreements did contain scopes and/or project descriptions;
however, some items in project scopes did not comply with allowable cost
provisions and those grants are questioned below.
In some instances, information provided by subrecipients details lists of
participants in programs, including participant intake forms that contain
information on eligibility; however, for some programs no conclusions
were drawn on whether participants were eligible. Additionally, some
intake forms detail wage information that makes participant ineligible for
program. For those programs that did not draw conclusions on eligibility
determinations and those that covered ineligible participants, the grants are
also questioned below.
o

o

o

o

o

Autism Center of North Mississippi – Granted $250,000 to provide
a variety of services to children with autism. Many of the services
provided do not meet allowable cost guidelines. Actual payments
totaled $7,472 in FY 2018; and $99,732 in FY 2019.
Baldwyn School District – Granted $577,163 for a variety of
programs provided to children of the district. Many of the services
provided do not meet allowable cost guidelines and services were
not limited eligible participants. Actual payments totaled $158,574
in FY 2018; and $210,600 in FY 2019.
Children’s Advocacy Center – Granted $579,180 to develop and
increase child advocacy training studies at colleges and
universities. Many of the services provided do not meet allowable
cost guidelines and were not limited to eligible participants. Actual
payments totaled $254,478 in FY 2018; and $48,913 in FY 2019.
Kelly Williams Ministries – Granted $75,000 to assist women reentering the workforce after incarceration or addiction. Auditor
could not determine if eligibility determinations were made for
participants. Actual payments totaled $64,000 in FY 2019.
Mississippi State University – Three different subgrant agreements
were provided to auditors; however, auditor could not discern
based on supporting documentation from which of the three
subgrants the payments were made; therefore, the total of all

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o

o

o

o

o

o

payments is presented. Actual payments totaled $595,482 in FY
2018; and $217,800 in FY 2019.
 “Recruitment and Enrollment” – Granted $225,000 to
recruit students into the Education programs at the
university. Program does not meet allowable cost
guidelines.
 “Augmentative Communication” – Granted $150,188 to
pay for the salaries of therapists. Program does not meet
allowable cost guidelines.
 “Dyslexia” – Granted $171,089 to pay for the salaries of
therapists.
Program does not meet allowable cost
guidelines.
Nettleton School District – Granted $150,000 to pay for
curriculum, equipment and supplies. Program does not meet
allowable cost guidelines. Actual payments totaled $48,201 in FY
2018.
Prentiss County Library – Granted $144,800 to pay for the salaries
of library personnel. Program does not meet allowable cost
guidelines. Actual payments totaled $46,533 in FY 2018; and
$93,067 in FY 2019.
Regional Rehabilitation Center - Granted $500,000 to pay for the
salaries of therapists. Program does not meet allowable cost
guidelines. Actual payments totaled $263,995 in FY 2018; and
$175,019 in FY 2019.
Reviving Network – Granted $74,259. Scope only includes the
requirement to report on grant’s progress. Auditor is unable to
determine if program meets allowable cost guidelines. Actual
payments totaled $31,096 in FY 2018; and $18,325 in FY 2019.
Robinson Resource Center – Granted $60,000 to operate a
community outreach center. Services provided are not limited to
eligible participants. Actual payments totaled $8,835 in FY 2018;
and $23,182 in FY 2019.
Southeast Mississippi Children’s Advocacy Center – Granted
$14,000 to develop and increase child advocacy training studies at
colleges and universities. Many of the services provided do not
meet allowable cost guidelines and not limited to eligible
participants. Actual payments totaled $20,625 in FY 2018; and
$11,371 in FY 2019.

Questioned costs for fiscal year 2018 – $1,435,291
Questioned costs for fiscal year 2019 – $962,009
Total amount questioned in 2018 – $3,161,248
Total amount questioned in 2019 – $3,319,311
Personal Benefit/Conversion to Private Use
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.

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The Code of Federal Regulations (2 cfr 200.445 (a)) states that, “Costs of goods or
services for personal use of the non-federal entity’s employees are unallowable
regardless of whether the cost is reported as taxable income to the employees.”
Exceptions/Questioned Costs: During the course of the audit, auditors became
aware that MCEC was under investigation for the misuse of state and federal
monies. Allegations against MCEC included the conversion of assets derived from
federal grants to personal use. Auditors examined the financial records of MCEC,
and concurred with the conclusion that some federal grant monies had been
converted to personal use. The Director (NN) and Assistant Executive (ZN)
Director of MCEC have both been indicted on charges of fraud and embezzlement
and have been arrested. Both pleaded non-guilty and are currently awaiting trial.
Auditor noted the following instances of alleged conversion of assets to personal
use:


From a period of January 1, 2016 to June 30, 2019, MCEC transferred/paid
a total of $6,513,393 in monies directly to the private business New
Learning Resources, Inc. (NLR) which is owned and operated by the
Director and Assistant Executive Director of MCEC. NLR operates in
several different ways, including a website for online learning, New
Learning Resource School Districts (NLRSD), and offers other educational
services at the private school, New Summit School (NSS). A review of the
transactions/transfers indicates that NLR and MCEC’s finances were
commingled and intertwined in such a manner that MCEC often paid
invoices addressed to personnel at NLR and sent to NLR’s physical address.
Vice versa, some transactions indicate NLR paid for MCEC expenses and
NLR was reimbursed for those charges. Auditor noted, however, that when
NLR funds were used to pay for MCEC expenses, MCEC reimbursed NLR
almost immediately, in many instances the same day. The balance for
transactions paid by MCEC on behalf of NLR, however, continued to
increase throughout the fiscal year. Some of the $6,513,393 was offset by
credits for amounts paid by NLR on behalf of MCEC; however, the
legitimacy of the credits could not be determined.
MCEC utilized a variety of accounting transactions to allegedly conceal
money transfers to NLR. As an example, general ledgers provided by
MCEC to auditors and MCEC’s underlying financial records do not agree
in regards to transactions to NLR. In multiple instances the underlying
financial records refer to the payee on the transfer/check as New Learning
Resources; however, the general ledger provided to auditors show the same
transactions with varying vendor names. For example, in one instance the
financial records show a payment to NLR on 01/08/2019 for $1,125 for
catering of Highway Patrol meals; however, the same entry on the general
ledger provided to auditors shows the payee of this transaction to be
“Robert’s Catering.” In fact, any payments to NLR other than a $700,000
grant payment had been artificially removed from the general ledger
provided to auditors.
Additionally, there were numerous transactions in the general ledger
provided to auditors that indicated that the payee on a check was American
Express, showing the transaction to be a credit card charge; however, when

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auditors examined the actual bank statements of MCEC, the same
transactions would be made out to NLR. Therefore, the American Express
balance in the was overstated, and the amount paid to NLR was understated.
The only discernable purpose of this deliberate mislabeling of transactions
in the general ledger would be to conceal the number and amount of
transactions flowing through from MCEC to NLR.
General journal transactions were used to transfer money and set up a “Due
from NLR” in the accounting system. The balance in the “Due from NLR”
account has a $1,085,217 balance as of June 30, 2019, indicating that
MCEC utilized grant monies of a minimum of $1,085,217 to fund NLR. In
December 2018 alone, MCEC funded NLR a total of $275,000 in transfers
coded as “Due from NLR.”
On November 30, 2018, MCEC recorded a $700,000 transfer of TANF
funds to NLR. The amount is coded as a general journal reduction in the
amount owed to MCEC. When auditors inquired about the transfer, MCEC
personnel provided a signed grant agreement from MCEC to NLR.
However, investigators were able to verify that the document had been
falsified, was not in existence at the time of the transfer, and that proceeds
did not benefit NLR in a grant/subgrant relationship. When added with the
balance of the “Due from NLR” account, the actual amount of MCEC funds
used to fund NLR increases to $1,785,217.
Auditors also reviewed invoices supplied by MCEC for fiscal year 2019,
and were able to verify $73,514 of transactions that were paid using TANF
Funds on behalf of NLR in addition to the amounts in the paragraph above.
These costs included utilities, licenses, curriculum, etc.
Without examining the records of NLR, auditors cannot determine what
fiscal year these charges stem from and what year the grant costs should be
questioned for any balance prior to 2017. Additionally, auditor cannot
verify that these are the only amounts converted to private use without a
thorough review of the records of NLR and MCEC in tandem.
After analyzing the transfers and transactions in the ledger, auditor
questioned the payments to NLR that were not offset by credits.
Questioned costs for fiscal year 2018 – $473,622
Questioned costs for fiscal year 2019 – $1,326,267


The Director and Assistant Executive Director entered into a contract for
$1,700,000 with the medical company, Prevacus, to purchase an investment
in Prevacus and its affiliate PreSolMD. The company manufactures a brain
concussion medicine. In exchange for the investment, Prevacus was to
conduct clinical trials of the new medicine on children in Mississippi. The
agreement was entered into by the Director (NN) and Assistant Executive
Director of MCEC (ZN) in their personal capacity. An initial wire transfer
of $500,000 was made on April 8, 2019 and a subsequent wire transfer of
$250,000 was made on May 10, 2019. Original entries in the general ledger
show that the payments were made with TANF funds; however, after State

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Auditor Investigators questioned the use of TANF funds in July 2019, the
funding source was changed to “Bingo” in the accounting software. It
should be noted that an additional $350,000 was paid in FY 2020.
Questioned costs for fiscal year 2019 – $750,000


MCEC paid Magnolia Strategies, LLC, a company owned by the Director
of MCEC’s son, $250,000 in “consulting” fees in both FY 2018 and 2019.
Auditors were not provided a copy of any contracts for these fees, and,
therefore, cannot determine what, if any, services were actually performed.
All three checks were originally paid with TANF funds and coded as such
in the accounting system. On July 16, 2019, after MCEC was first
questioned about the use of TANF funds by State Auditor Investigators, the
audit trail shows that a check written to Magnolia Strategies was re-coded
in the system as “Administrative” funds.
Questioned costs for fiscal year 2018 – $250,000
Questioned costs for fiscal year 2019 – $250,000



Auditors reviewed invoices supplied by MCEC for fiscal year 2019, and
were able to verify $4,387 of transactions that were paid using TANF Funds
on behalf of Spectrum Academy. Spectrum Academy is also owned by the
Director of MCEC’s son. Additionally, $7,490 was paid in TANF funds
for expenses of the Mississippi Dyslexia Center, which is also owned by
the Director of MCEC’s son. No contracts or subgrants existed to justify
these payments. Payments ranged from utility payments, advertising
payments, licenses, meals, etc.
Questioned costs for fiscal year 2019 – $11,877



Auditors were able to identify $118,022 in costs paid using TANF/CCDF
funds for NSS in FY 2019. Of those funds, $70,228 were used to purchase
kitchen equipment for the cafeteria of NSS, and $17,842 was used to
purchase Apple Computer products for NSS. The remaining $29,952 was
used to purchase various supplies, pay for utilities, purchase licenses, etc.
Additionally, MCEC entered into contractual agreements with the
University of Southern Mississippi (USM) to fund “externships” of
students at the University through the School of Psychology. Externships
allow individuals to study in a real-world work environment. According to
press releases by USM and invoices supplied to auditor by MCEC, these
externships were completed at NSS. Therefore, MCEC used TANF funds
to pay for temporary workers at NSS. These invoices are billed to MCEC
with the description “Spectrum I – Externships” and “Spectrum II”. These
costs were coded as “consulting” and charged to the TANF grant. Total
costs paid under these grants includes $526,146 paid in FY 2018 and
$56,131 in FY 2019.
Questioned costs for fiscal year 2018 – $526,146

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55   P a g e
Questioned costs for fiscal year 2019 – $174,153


On February 22, 2017, the Assistant Executive Director of MCEC
borrowed $28,898 against the balance of his 403(b) pension plan at
American Funds. The loan repayment included semimonthly payments of
$264. Upon review of general ledger, payments were made from the
Assistant Director to repay the loan in the amount of $1,489 for FY 2017,
$6,380 for FY 2018, and $6,343 in FY 2019. According to MCEC
personnel, these payments were deducted from the Assistant Executive
Director’s gross pay; however, auditor determined that no deductions were
made against his pay and that the charges were coded and charged to the
TANF grant. It should be noted that another employee of MCEC had a loan
against his 403(b) pension plan. His monthly payments were deducted from
his gross pay, as required.
Questioned costs for fiscal year 2017 – $1,489
Questioned costs for fiscal year 2018 – $6,380
Questioned costs for fiscal year 2019 – $6,343

Total amount questioned in 2017 – $1,489
Total amount questioned in 2018 – $1,256,148
Total amount questioned in 2019 – $2,518,640
Related Party Rent and Idle Facilities
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.446) states that the cost of “idle
facilities” is an unallowable cost. Idle facilities are defined as facilities that are
completely unused and to the excess of the entity’s current needs.
The Code of Federal Regulations (2 cfr 200.465) states that rental costs are
allowable to the extent that the rates are reasonable in light of rental costs of
comparable property, market conditions, alternatives available, and the condition of
the property.
The Code of Federal Regulations (2 cfr 200.465(c)) states that rental costs under
“less than arm’s length” leases are allowable only up the amount that is considered
reasonable compared to similar property. It further defines a “less than arm’s
length” lease as one where the lessor and lessee are under “common control” such
as a situation involving two companies owned by the same individual, or the two
companies owned by immediate family members. Family members, for the purpose
of this regulation, are defined as (1) Spouse, and parents thereof; (2) Children, and
spouses, thereof; (3) Parents, and spouses thereof; (4) Siblings, and spouses thereof;
(5) Grandparents and grandchildren, and spouses, thereof; (6) Domestic partner, and
parents thereof; (7) Any individual related by blood or affinity whose close
association with the employee is equivalent of a family relationship.

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Exceptions/Questioned Costs: MCEC is owned and operated by the Director, and
her son, the Assistant Executive Director. Together, they own Avalon Holdings,
LLC (Avalon). The Director’s other son owns and operates 204 Key, LLC (Key).
Both Avalon and Key own properties that are utilized by MCEC as places of
business. Avalon owns three separate buildings that are utilized by MCEC; Key
owns one.


Avalon owns the main building that is used as MCEC’s headquarters. In
this shared space is a dentist office rented to an independent third party,
MCEC, and New Learning Resource Online (NLRO), which is also owned
by the Director of MCEC and her family. During the audit, auditors noted
that the rental payments to Avalon seemed excessive considering market
conditions, size of the property, condition of the property, and location of
the property. After a search of business listings by the Mississippi
Secretary of State’s Office, auditors confirmed that MCEC and Avalon
were under common control, and, therefore, should only be able to charge
“reasonable and comparable” rent for use of the building. Auditors
requested a copy of the lease agreement, and were provided an unsigned
agreement stating that monthly rent was $3,997. After requesting a signed
copy of the lease, auditors were provided a new lease agreement that stated
the monthly rent to be $16,000 per month for “operating a retail boutique”
and stated the size of the property was 12,500 square feet. MCEC finally
provided a lease agreement amendment that stated that the monthly rental
payments were $27,466 monthly.
Auditors were able to ascertain the square footage of MCEC’s utilized
space, the square footage of the independent third party’s utilized space and
the rent charged, and calculated a reasonable “per square foot” rent charge
of $1.78 per square foot (monthly rent of $5,488 for 3,084 square feet of
space for the independent third party). MCEC uses approximately 7,000
square feet, according to documents provided. These calculate to a
reasonable, market value of rent to be $12,460 per month. Actual rental
payments made to Avalon monthly for MCEC were $27,466 monthly, plus
additional amounts paid on a sporadic basis. MCEC actually paid $357,061
in rental fees for FY 2019. Reasonable annual rent is calculated to be
$149,520. $207,541, the portion of rent that is considered above market
value, is questioned
Additionally, rent is charged for a building close in proximity to the
headquarters of MCEC. When auditors inquired about the purpose of the
rent payments, MCEC informed auditors that the space was utilized for
office space and intake assessments for Families First. However, based on
a physical walkthrough and inquiry with NSS personnel, auditor
determined that the building is utilized by the 4th grade classes at NSS, and
is the location of the “Spectrum Academy” location inside NSS. Both NSS
and Spectrum Academy are privately owned organizations by the Director
of MCEC and her family. Rental payments for the building were $9,868
monthly, or $118,416 annually. As these facilities were used for personal
businesses of the Director of MCEC and her family and has no correlation
to TANF, the cost of rent payments is an unallowable cost. Additional rent

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payments were made in the ledger with no explanation as to why. Actual
payments of $128,294 are questioned.
Avalon also owns a property in Greenwood, MS, that is utilized by MCEC
as a “Families First Resource Center.” Auditors were provided with a lease
agreement stating monthly rent would be $2,000 (or $24,000 annually), and
would be increased no more than 3 percent for the next year. Based on the
initial amount of the lease plus the 3 percent increase, monthly rent should
be no more than $2,060, or $24,720 annually. MCEC paid rental fees at
$7,500, or $90,000 annually. Additionally, extra rental payments were
made on a sporadic basis. Actual payments for the space totaled $97,806.,
an overpayment of $73,086. Questioned costs include the difference in
what the lease agreement allowed ($24,720) and actual payments.
Additional rent payments made to Avalon in the amount of $6,250 are also
questioned as there is not a business purpose for the extra payments.
Questioned costs for fiscal year 2019 – $415,171


MCEC paid monthly rental payments of $3,500 to Key for property located
in Madison, MS. When a copy of the lease was requested by auditors,
MCEC supplied a lease agreement for the property address between MCEC
and Avalon Holdings, which is the incorrect lessor. The monthly amount
of the lease on the agreement provided was $2,500, or $30,000 annually.
Auditors inquired of the purpose of the rent payments, and were told that a
“Families First Resource Center” was located at the address. Auditors did
a physical walkthrough of the property and located no such center. The
only property at the address was a Mississippi Dyslexia Center, which is
also owned by the Assistant Executive Director of MCEC and the owner of
Key. The Dyslexia Center is a fee-for-service therapy center and not related
to TANF. Even though the agreement stated rent was $2,500 monthly,
MCEC paid $3,500 monthly. Actual payments of $42,000 are questioned
due to no valid TANF purpose.
Questioned costs for fiscal year 2019 – $42,000



MCEC also entered into a lease for property at the “City Centre” in Jackson
owned by Hertz Jackson City Centre, LLC (Hertz) in FY 2019. MCEC
paid a $500,000 deposit for the property, and signed a lease for monthly
payments of $20,274. The location was to be a “virtual reality school” run
by the Lobaki Foundation. However, the contract for the “vr school” ended
in July 2019, and no additional use for the property was identified;
therefore, the location sat idle for FY 2019. MCEC continued to charge the
rent for the idle facilities to the TANF grant. Actual payments, including
the deposit, totaled $669,237. Due to the restriction of idle facility charges,
the total amount paid on the lease is questioned.
Questioned costs for fiscal year 2019 – $669,237

Total amount questioned in 2019 –$1,126,408

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Travel for Specific Individuals
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.446) states “Travel costs are the
expenses for transportation, lodging, subsistence, and related items incurred by
employees who are in travel status on official business of the non-Federal entity.
Such costs may be charged on an actual cost basis, on a per diem or mileage basis
in lieu of actual costs incurred, or on a combination of the two, provided the method
used is applied to an entire trip and not to selected days of the trip, and results in
charges consistent with those normally allowed in like circumstances in the nonFederal entity’s non-federally-funded activities and in accordance with non-Federal
entity’s written travel reimbursement policies.”
The Code of Federal Regulations (2 cfr 200.446(b)) states “Costs incurred by
employees and officers for travel, including costs of lodging, other subsistence, and
incidental expenses, must be considered reasonable and otherwise allowable only
to the extent such costs do not exceed charges normally allowed by the non-Federal
entity in its regular operations as the result of the non-Federal entity’s written travel
policy. In addition, if these costs are charged directly to the Federal award
documentation must justify that: (1) Participation of the individual is necessary to
the Federal award; and (2) The costs are reasonable and consistent with non-Federal
entity’s established travel policy.”
The Code of Federal Regulations (2 cfr 200.446(d)) states “Airfare costs in excess
of the basic least expensive unrestricted accommodations class offered by
commercial airlines are unallowable except when such accommodations would: (i)
Require circuitous routing; (ii) Require travel during unreasonable hours; (iii)
Excessively prolong travel; (iv) Result in additional costs that would offset the
transportation savings; or (v) Offer accommodations not reasonably adequate for
the traveler’s medical needs. The non-Federal entity must justify and document
these conditions on a case-by-case basis in order for the use of first-class or
business- class airfare to be allowable in such cases.”
Exceptions/Questioned Costs: During the audit, auditors noted that certain
individuals were reimbursed substantial travel costs when compared to other
personnel. Additionally, due to the instances of fraud, waste, and abuse at MDHS,
MCEC and FRC, certain individuals were assigned higher risk with travel
reimbursements than everyday personnel. During testwork, the auditor noted the
following questioned costs:


Priceless Ventures, LLC travel – The owner and operator of Priceless
Ventures (TD) was reimbursed for travel from MCEC. The contracts with
MCEC state that the contract price is all inclusive and do not detail policies
for travel reimbursement. Nevertheless, travel made by TD for these
contracts was reimbursed and charged to the TANF grant. A review of
actual travel invoices showed that TD often flew first class, stayed in high
priced hotel suites, and charged expensive meals for himself and others. In

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one instance, $607 for the “Oxford Grillehouse” was charged to the TANF
grant. For fiscal year 2019, MCEC reimbursed $12,872 to TD for travel.
Due to the unreasonable cost of the expenses, the lack of correlation to
TANF purpose, and the violation of restrictions on airfare, these charges
are questioned.
Questioned costs for fiscal year 2019 – $12,872


BD travel – Aside from being the owner and operator of Restore2, LLC,
BD was also employed by MCEC from July 1, 2018 to June 30, 2019.
During his employment there, BD also submitted requests for
reimbursement for travel. The travel reimbursement requests do not
contain information to ascertain the relevance of the travel to TANF
purposes. Additionally, a review of the actual travel invoices showed that
BD often flew first class, stayed in high priced hotel suites, and charged
expensive meals. During his employment, BD was reimbursed $31,808 of
travel expenses. Due to the unreasonable cost of the expenses, the lack of
correlation to TANF purpose, and the violation of restrictions on airfare,
these charges are questioned.
Questioned costs for fiscal year 2019 – $31,808



MCEC purchased a round trip, first class ticket for BD’s wife to fly to Los
Angeles, CA, with BD on April 21, 2019. Flight arrangements were made
by Executive Director JD’s Administrative Assistant and emailed to BD,
with Executive Director copied on the email. During this time, BD was in
addiction treatment in Malibu, CA at Rise in Malibu, as stated in the finding
above. As there was no business purpose in the trip, BD’s wife was not an
employee of MCEC, and given the restrictions on airfare, these costs are
questioned.
Questioned costs for fiscal year 2019 – $1,614

Total amount questioned in 2019 –$46,294
Salaries
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
The Code of Federal Regulations (2 cfr 200.445 (a)) states that, “Costs of goods
or services for personal use of the non-federal entity’s employees are unallowable
regardless of whether the cost is reported as taxable income to the employees.”
The Code of Federal Regulations (2 cfr 200.53(b)) states “Improper payment
includes any payment to an ineligible party, any payment for an ineligible good or
service, any duplicate payment, any payment for a good or service not received
(except for such payments where authorized by law), any payment that does not
account for credit for applicable discounts, and any payment where insufficient or

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lack of documentation prevents a reviewer from discerning whether a payment was
proper.”
The Code of Federal Regulations (2 cfr 200.404) states “A cost is reasonable - if
in its nature and amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time the decision was
made to incur the cost. The question of reasonableness is particularly important
when the entity is predominately federally funded. In determining reasonableness
of a given cost, consideration must be given to: (a) Whether the cost is of a type
generally recognized as ordinary and necessary for the operation of the nonFederal entity or the proper and efficient performance of the Federal award. (b)
The restraints or requirements imposed by such factors as: sound business
practices; arm’s-length bargaining; Federal, state, local, tribal, and other laws and
regulations; and terms and conditions of the Federal award. (c) Market prices for
comparable goods or services for the geographic area. (d) Whether the individuals
concerned acted with prudence in the circumstances considering their
responsibilities to the non-Federal entity, its employees, where applicable its
students or membership, the public at large, and the Federal Government. (e)
Whether the non-Federal entity significantly deviates from its established practices
and policies regarding the incurrence of costs, which may unjustifiably increase
the Federal award’s cost.”
The Code of Federal Regulations (2 cfr 200.405 (a)) states “A cost is allocable to
a particular Federal award or other cost objective if the goods or services involved
are chargeable or assignable to that Federal award or cost objective in accordance
with relative benefits received.”
The MDHS Subgrant/Contract Manual, which subgrants must attest to have read
and understood prior to receiving grant awards, states in Section 5, under the
heading “Documentation Requirements” that the minimum documentation
requirements for salaries are time sheets and activity reports which reflect the
actual hours worked and duties performed. Time distribution/activity sheets are
required when the employee’s time is charged to more than one subgrant or
activity. This section also states under the heading “Cost Allocation/Indirect
Costs”, if MDHS subgrantee administers more than one subgrant at a time which
results in costs that are shared among various subgrant programs and/or other funds
such as local resources, the subgrantee must document the basis for allocating a
portion of the shared costs to the MDHS subgrant and shall distribute the costs in
a reasonable proportion to the benefits received.
Exceptions/Questioned Costs: In order to test the salaries paid at MCEC, auditors
requested a list of employees and their salaries. MCEC provided a list; however,
the list did not contain job descriptions. Auditors then requested for the job
descriptions to be added to the list. When auditors received the revised list with
job descriptions, auditors compared the two lists and found that five employees on
the first list were not on the second list, and some of the salary amounts changed.
Two of the employees that were no longer listed were the daughters-in-law of the
Director of MCEC (NN) – the Assistant Executive Director’s (ZN) wife, and the
wife of NN’s other son, JN. Two of the other employees that were no longer listed
were attorneys that also are employees at FRC, one of which was previously the

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Deputy Executive Director of MDHS under Executive Director JD and the other
is the niece of the Executive Director of FRC.
Further review of the underlying accounting records indicated that both daughtersin-law were each paid $31,667 in gross earnings (for a total of $63,333 in FY 2018)
using TANF funds. This amount includes a check to each in the amount of $15,000
(gross) on September 29, 2017.
The two attorneys reference above received approximately $181,000 in FY 2018
and $394,000 in FY 2019 from FRC; and received approximately $203,000 in FY
2018 and $208,000 in FY 2019 from MCEC.
As discussed above, through the course of the audit, auditors became aware of the
risk of TANF funds converted to personal use to fund private businesses owned by
the Director of MCEC (NN), the Assistant Director of MCEC (ZN) and NN’s son
JN. Auditors determined that there were several employees on MCEC’s payroll
who were also listed as staff of New Summit School (NSS – owned by NN),
Mississippi Dyslexia Center (owned by JN and ZN), and Spectrum Academy
(owned by JN). The salaries of the employees identified were approximately
$339,000 in FY 2017, $860,000 in FY 2018, and $944,000 in FY 2019.
Also, as discussed above, the principal of Restore2 (BD) was also an employee of
MCEC. In addition to the payments that were made to the rehabilitation facility,
and the contractual payments made to BD by MDHS, BD continued to be paid
$83,000 in salary payments by MCEC during the time period that he was in
rehabilitation at Rise In Malibu. BD’s job description, as listed by MCEC, was
“Trainer”. The average salary of all of the other employees with the “Trainer” job
description was approximately $28,000. However, BD was receiving an annual
salary of $250,000. The total amount paid to BD was approximately $208,000 in
FY 2018, and $250,000 in FY 2019.
The owner of MD Foundation (MD) discussed above was also an employee of
MCEC. Initially, MCEC stated that MD was also a “trainer”, although, MCEC
later stated that he was a “community liaison”. MD received an annual salary of
$130,000. The amount paid to MD was approximately $104,000 in FY 2018 and
$130,000 in FY 2019. MD was also an employee of FRC during the same period
and received approximately $60,000 in FY 2018 and $59,000 in FY 2019.
Due to the widespread fraud, waste, and abuse already discussed, the fact that
MCEC attempted to conceal who was paid with TANF funds by editing the
employee listing provided to auditors, the familial relationships of some
employees with the owners of MCEC, the lack of any discernable work performed
to earn the salaries of some individuals, and the unreasonable amounts of certain
salaries, these costs are specifically questioned.
In addition to these specific questioned costs, neither subrecipient had a
reasonable, causal beneficial, underlying allocation methodology of the salaries to
the multiple subgrants that they received. Nor did they have adequate supporting
documentation to substantiate the allocations that were used. For this reason, we
are questioning all of the salaries and wages paid as auditors cannot determine
what a reasonable allocation would be based on the existing documentation.

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Total amount questioned in 2017 - $5,840,046
Total amount questioned in 2018 - $13,202,040
Total amount questioned in 2019 - $15,296,505
All Other Costs from MCEC Sampled
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
Exceptions/Questioned Costs: Auditors sampled and tested all other expense
classes at MCEC for adherence to Uniform Grant Guidance allowability
regulations. During testing, auditors noted that MCEC did not have an appropriate
or auditable underlying methodology for allocating shared costs among multiple
grants. Due to this lack of methodology, auditors could not verify the cost charged
to the grant was reasonable or necessary. The items detailed below are questioned
in addition to those items identified during a nomenclature review and detailed in
the above paragraphs.
During testwork for allowable costs and activities allowed, auditors noted the
following questioned costs:


Awards, Banquets, and Events – Out of 12 items tested, auditors noted the
following:
o Three instances totaling $14,656 where documentation supporting the
cost could not be provided; therefore, auditor could not determine if
cost was allowable.
o Seven instances totaling $54,480 where cost were determined
questionable based on the reasonableness to the TANF program.
Questioned Cost for fiscal year 2019 - $69,136



Consulting – One item was questioned:
o One item totaling $100 was questioned in which the reasonableness
and allowability of an expenditure could not be determined due to the
agency not providing sufficient documentation for the expenditure.
Questioned Cost for fiscal year 2019 - $100



Contract Labor – Out of 194 items tested, auditors noted the following:
o Seven items totaling $450 were questioned due to auditor being unable
to determine the need for the expense to the TANF program due to
insufficient details in supporting documentation.
o Sixteen items totaling $853 where MCEC was unable to provide a
contract or agreement for the services provided. Therefore, auditor
was unable to determine the need or reasonableness to the TANF
program.

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o

179 items totaling $70,415 where MCEC was unable to provide a
contract or agreement that the tutoring services performed were for
work related to TANF eligible individuals.

Questioned Cost for fiscal year 2019 - $71,718


Curriculum – One item was questioned:
o One item totaling $15,750 was questioned in which the reasonableness
and allowability of an expenditure could not be determined due to the
agency not providing sufficient documentation for the expenditure.
Questioned Cost for fiscal year 2019 - $15,750



Data Processing – Out of 5 items tested, auditors noted the following:
o Five items totaling $5,100 in which costs were questioned due to 100
percent of the cost being charged to the TANF program. The
subgrantee did not have a proper allocation plan and the auditor was
unable to determine the percentage of the expense that is considered
necessary and reasonable for the performance and administration of
federal awards to the TANF program.
Questioned Cost for fiscal year 2019 - $5,100



Dues and Subscriptions – Out of 5 items tested, auditors noted the following:
o Three items totaling $139 where the expense was questioned based on
the reasonableness to promote the objectives of the TANF program.
o Two items totaling $355 where MCEC paid for expenses associated
with a counselor licensure for an employee who was employed by
New Summit School.
Questioned Cost for fiscal year 2019 - $494



Equipment Rental – Out of 100 items tested, auditors noted the following:
o Nine items totaling $2,334 were questioned in which the
reasonableness and allowability of an expenditure could not be
determined due to the agency not providing sufficient documentation
for the expenditure.
o Six items totaling $923 where the expense was questioned based on
the reasonableness to promote the objectives of the TANF program.
o Eighty-four items totaling $31,759 where costs were questioned due
to 100 percent of the cost being charged to the TANF program. The
subgrantee did not have a proper allocation plan and the auditor was
unable to determine the percentage of the expense that is considered
necessary and reasonable for the performance and administration of
federal awards to the TANF program.
Questioned Cost for fiscal year 2019 - $35,016



Janitorial – Out of 6 items tested, auditors noted the following:

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o

Six items totaling $3,295 where costs were questioned due to 100
percent of the cost charged to the TANF program. The subgrantee did
not have a proper allocation plan and the auditor was unable to
determine the percentage of the expense that is considered necessary
and reasonable for the performance and administration of federal
awards to the TANF program.

Questioned Cost for fiscal year 2019 - $3,295


Meetings – One item was questioned:
o One item totaling $200 where the reasonableness of the expenditure
to promote the objective of the TANF program could not be
determined.
Questioned Cost for fiscal year 2019 - $200



Postage and Delivery – Out of 9 items tested, auditors noted the following:
o Three items totaling $2,005 where costs were questioned due to 100
percent of the cost being charged to the TANF program. The
subgrantee did not have a proper allocation plan and the auditor was
unable to determine the percentage of the expense that is considered
necessary and reasonable for the performance and administration of
federal awards to the TANF program.
Questioned Cost for fiscal year 2019 - $2,005



Professional Fees – Out of 3 items tested, auditors noted the following:
o One item totaling $5,500 where costs were questioned due to 100
percent of the cost charged to the TANF program. The subgrantee did
not have a proper allocation plan, and the auditor was unable to
determine the percentage of the expense that is considered necessary
and reasonable for the performance and administration of federal
awards to the TANF program.
o Two items totaling $135 where MCEC paid for expenses associated
with an employee who was employed by New Summit School. Due to
this and MCEC not having a proper allocation plan, auditor is unable
to determine the percentage of charges that should be charged to the
TANF program.
Questioned Cost for fiscal year 2019 - $5,635



Repairs and Building – Out of 4 items tested, auditors noted the following:
o Four items totaling $2,889 where the cost is unallowable as
maintenance and repair cost. Per 2 cfr 200.452, costs incurred for
utilities, insurance, security, necessary maintenance, janitorial
services, repair, or upkeep of buildings and equipment (including
Federal property unless otherwise provided for) which neither add to
the permanent value of the property nor appreciably prolong its
intended life are only allowable if these costs keep the
building/property in an efficient operating condition.

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Questioned Cost for fiscal year 2019 - $2,889


Repairs - Other – Out of 2 items tested, auditors noted the following:
o Two items totaling $1,330 where documentation supporting the cost
could not be provided; therefore, auditor could not determine if cost
was allowable.
Questioned Cost for fiscal year 2019 - $1,330



Seminars and Continuing Education - Out of 10 items tested, auditors noted
the following:
o Five items totaling $492 where documentation supporting the cost
could not be provided; therefore, auditor could not determine if cost
was allowable.
o One item totaling $150 where costs were determined questionable
based on the reasonableness of the cost to promote the TANF program
o Two items totaling $28,796 were questioned due to MCEC not having
a proper cost allocation plan. Auditor could not determine the
percentage of the expenditure that would be considered necessary and
reasonable for the performance and administration of Federal awards.
100 percent of the expenditure should not be charged directly to the
TANF grant due to salaries being a shared cost across multiple grants.
Auditor also noted that due to the nature of expenditure reporting and
record keeping, auditor could not determine if the cost was recorded
to the correct reporting category, or used to meet the matching
requirements of any other federal award. Additionally, auditor could
not determine if the cost was consistent with policies, regulations, and
procedures that apply uniformly to both federal awards and other
activities.
Questioned Cost for fiscal year 2019 - $29,438



Repairs and Building – Out of 4 items tested, auditors noted the following:
o One item totaling $1,106 where documentation supporting the cost
could not be provided; therefore, auditor could not determine if cost
was allowable.
Questioned Cost for fiscal year 2019 - $1,106



Supplies – Out of 17 items tested, auditors noted the following:
o Three items totaling $705 where documentation supporting the cost
could not be provided; therefore, auditor could not determine if cost
was allowable.
o Five items totaling $339 where costs were determined questionable
based on the reasonableness of the cost to promote the TANF program.
o Nine items totaling $402 were questioned due to MCEC not having a
proper cost allocation plan. Auditor could not determine the
percentage of the expenditure that would be considered necessary and

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reasonable for the performance and administration of Federal awards.
100 percent of the expenditure should not be charged directly to the
TANF grant. Auditor also noted that due to the nature of expenditure
reporting and record keeping, auditor could not determine if the cost
was recorded to the correct reporting category, or used to meet the
matching requirements of any other federal award. Additionally,
auditor could not determine if the cost was consistent with policies,
regulations, and procedures that apply uniformly to both federal
awards and other activities.
Questioned Cost for fiscal year 2019 - $1,446


Telephone – While reviewing invoices, auditors noted the following:
o MCEC is paying a portion of each employees' phone bill;
however, the methodology to determine how much is paid per
employee is not properly documented. The fringe benefit is
applied to all employees regardless of need in regards to TANF
purposes. Additionally, it was noted that MCEC is also paying 100
percent of the phone bill for employees that are either not
employed by MCEC, do not work full time for MCEC, or work
for New Summit School or New Learning Resource center parttime. Auditors also noted that the telephone invoices also indicate
that MCEC is paying for iPhones and iPad devices for NN
(iPhone, iPad, and data for each), ZN (iPhone, two iPads, and data
for each), ZN’s wife (iPhone and data), JN (iPhone and data), and
JN’s wife (iPhone and data). MCEC was also paying monthly
installments on two phones and for the iPhone data for the owner
of Priceless Ventures, TD.
Invoices also show that some employees’ are having their spouses
and children’s phones, service, and iPhone data paid for using
TANF funds – including the IT Director of MCEC’s (BB) own
phone and data, his son’s data, and his daughter’s phone and data.
Invoices show that MCEC paid monthly on installments on at least
25 different iPhones and iPads for employees. These devices
ranged from iPhone 8s to iPhone XS’s, and from iPad minis to
iPad Pros.
Additionally, Federal Regulation requires expenses to be allocated
to the projects based on the proportional benefit, and auditors have
no assurance the cost associated with this benefit is being applied
properly. Due to these factors, all amounts paid for telephone
expense for FY 2019 are questioned.
Questioned Cost for fiscal year 2019 - $61,389



Telephone - Office – Out of 5 items tested, auditors noted the
following:

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o

Five items totaling $2,314 were questioned due to MCEC not
having a proper cost allocation plan. Auditor could not determine
the percentage of the expenditure that would be considered
necessary and reasonable for the performance and administration
of Federal awards. 100 percent of the expenditure should not be
charged directly to the TANF grant due to salaries being a shared
cost across multiple grants. Auditor also noted that due to the
nature of expenditure reporting and record keeping, auditor could
not determine if the cost was recorded to the correct reporting
category, or used to meet the matching requirements of any other
federal award. Additionally, auditor could not determine if the
cost was consistent with policies, regulations, and procedures that
apply uniformly to both federal awards and other activities.
Questioned Cost for fiscal year 2019 - $2,314

o

Travel - Mileage – Out of 7 items tested, auditors noted the following:
o Two items totaling $1,000 where documentation supporting the
cost could not be provided; therefore, auditor could not determine
if cost was allowable.
o Five items totaling $675 where cost for the travel to the events,
meetings, or trainings do not meet the needs or purpose of the
TANF program.
Questioned Cost for fiscal year 2019 - $1,675



Travel - Other – Out of 4 items tested, auditors noted the following:
o One item totaling $229 was questioned due to the fact expense
was to pay a speeding ticket incurred by the Director of MCEC
(NN). Speeding tickets and/or fines and penalties are
unreasonable, un-allocable, prohibited by state laws, and
unallowable.
o One item totaling $976 where documentation supporting the cost
could not be provided; therefore, auditor could not determine if
cost was allowable.
o Two items totaling $211 were questioned due to the travel costs
are for individuals who are not employees of MCEC.
Questioned Cost for fiscal year 2019 - $1,416



Utilities – Out of 97 items tested, auditors noted the following:
o One item totaling $52 where costs were determined questionable
based on the reasonableness of the cost to promote the TANF
program.
o One item totaling $93 was questioned due to funds being used to
pay a fine/penalty for unreturned satellite equipment. Fines and
penalties are unreasonable, un-allocable, prohibited by state laws,
and unallowable.

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o

Ninety-five items totaling $17,830 were questioned due to MCEC
not having a proper cost allocation plan. Auditor could not
determine the percentage of the expenditure that would be
considered necessary and reasonable for the performance and
administration of Federal awards. 100 percent of the expenditure
should not be charged directly to the TANF grant due to salaries
being a shared cost across multiple grants. Auditor also noted that
due to the nature of expenditure reporting and record keeping,
auditor could not determine if the cost was recorded to the correct
reporting category, or used to meet the matching requirements of
any other federal award. Additionally, auditor could not
determine if the cost was consistent with policies, regulations, and
procedures that apply uniformly to both federal awards and other
activities.
Questioned Cost for fiscal year 2019 - $17,975

Total amount questioned in 2019 –$329,427

All Other Costs from FRC Sampled
Laws and Regulations: The Code of Federal Regulations (2 cfr 200.403) states
that, in order to be allowable under federal guidelines, costs must be necessary and
reasonable, and adequately documented.
Exceptions/Questioned Costs: Auditors sampled and tested all other expense
classes at FRC for adherence to Uniform Grant Guidance allowability regulations.
During testing, auditors noted that FRC did not have an appropriate or auditable
underlying methodology for allocating shared costs among multiple grants. Due to
this lack of methodology, auditors could not verify the cost charged to the grant was
reasonable or necessary. The items detailed below are questioned in addition to
those items identified during a nomenclature review and detailed in the above
paragraphs.
During testwork for allowable costs and activities allowed, auditors noted the
following questioned costs:


Commodities – Out of 12 items tested, auditors noted the following:
o Ten items totaling $5,834 were questionable due to FRC not having a
proper cost allocation plan. Auditor could not determine the percentage
of the expenditure that would be considered necessary and reasonable
for the performance and administration of Federal awards. 100 percent
of the expenditure should not be charged directly to the TANF grant
due to salaries being a shared cost across multiple grants. Auditor also
noted that due to the nature of expenditure reporting and record
keeping, auditor could not determine if the cost was recorded to the
correct reporting category, or used to meet the matching requirements

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o
o

of any other federal award. Additionally, auditor could not determine
if the cost was consistent with policies, regulations, and procedures that
apply uniformly to both federal awards and other activities.
One item totaling $222 where costs were determined questionable
based on the reasonableness of the cost to promote the TANF program.
One item totaling $65 where documentation supporting the cost could
not be provided; therefore, auditor could not determine if cost was
allowable.
Questioned Cost for fiscal year 2019 - $6,121



Contractual – Out of 4 items, auditors noted the following:
o Three items totaling $3,512 were questionable due to FRC not having
a proper cost allocation plan. Auditor could not determine the
percentage of the expenditure that would be considered necessary and
reasonable for the performance and administration of Federal awards.
100 percent of the expenditure should not be charged directly to the
TANF grant due to salaries being a shared cost across multiple grants.
Auditor also noted that due to the nature of expenditure reporting and
record keeping, auditor could not determine if the cost was recorded to
the correct reporting category, or used to meet the matching
requirements of any other federal award. Additionally, auditor could
not determine if the cost was consistent with policies, regulations, and
procedures that apply uniformly to improper or if it conformed to the
limitations of 2 CFR part 200, subpart E. Additionally, adequate
documentation for two of the items supporting the cost could not be
provided; therefore, auditor could not determine if cost was allowable.
o One item totaling $2,667 where funds were used for promotional items
which are unallowable according to 2 CFR 200.431. Additionally,
adequate documentation supporting the cost could not be provided;
therefore, auditor could not determine if cost was allowable.
Questioned Cost for fiscal year 2019 - $6,179



Equipment – Out of 8 items tested, auditors noted the following:
o Eight items totaling $116,110 were questionable due to FRC not having
a proper cost allocation plan. Auditor could not determine the
percentage of the expenditure that would be considered necessary and
reasonable for the performance and administration of Federal awards.
100 percent of the expenditure should not be charged directly to the
TANF grant due to the equipment being a shared cost across multiple
grants. Auditor also noted that due to the nature of expenditure
reporting and record keeping, auditor could not determine if the cost
was recorded to the correct reporting category, or used to meet the
matching requirements of any other federal award. Additionally,
auditor could not determine if the cost was consistent with policies,
regulations, and procedures that apply uniformly to improper or if it
conformed to the limitations of 2 CFR part 200, subpart E.
Questioned Cost for fiscal year 2019 - $116,110

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

Travel – Out of 12 items tested, auditors noted the following:
o Two items totaling $4,605 were questionable due to FRC not having a
proper cost allocation plan. Auditor could not determine the percentage
of the expenditure that would be considered necessary and reasonable
for the performance and administration of Federal awards. 100 percent
of the expenditure should not be charged directly to the TANF grant
due to the travel being a shared cost across multiple grants. Auditor also
noted that due to the nature of expenditure reporting and record
keeping, auditor could not determine if the cost was recorded to the
correct reporting category, or used to meet the matching requirements
of any other federal award. Additionally, auditor could not determine
if the cost was consistent with policies, regulations, and procedures that
apply uniformly to both federal awards and other activities.
Questioned Cost for fiscal year 2019 - $4,605

Total amount questioned in 2019 –$133,015
Due to the widespread fraud, waste, and abuse uncovered during the audit, and the
lack of any appropriate underlying methodology for the allocation of shared costs
in both MCEC and FRC, the overall lack of documentation to establish
reasonableness and necessity of costs, the lack of integrity in documents obtained
from MCEC due to known instances of forgery, misdirection, document
modification, etc., the direct involvement of MDHS personnel in the fraud, waste,
and abuse, and the likelihood of additional fraud, waste, and abuse existing in the
actions of these subrecipients, auditor cannot state, with reasonable assurances, the
amount of grant costs for the TANF grant were used appropriately.
Known questioned costs, as detailed in the finding above:
For fiscal year 2017: $6,333,044 (TANF)
For fiscal year 2018: $28,419,923 (TANF)
For fiscal year 2019: $31,155,361 (TANF)
For fiscal year 2018: $593 (SSBG)
For fiscal year 2019: $111,262(SSBG)
For fiscal year 2018: $497,987 (SNAP)
For fiscal year 2019: $139,564 (CCDF)
Likely questioned costs include total amounts paid to MCEC and FRC for TANF,
CCDF and SNAP awards less any amounts questioned in other allowable cost
findings in this report. The total has been reduced by those questioned costs to
ensure the same dollar is only questioned one time.
Chart below shows amounts actually paid to MCEC and FRC as of June 30, 2019.
Amounts paid could be less than grant awards listed in the “Background” section
of the finding due to timing differences in the State/Federal fiscal years.

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Total Paid
2019
TANF
CCDF
SNAP
2018
TANF
SNAP
SSBG
2017
TANF
Total

Less Amount Questioned in
Other Finding

Total Questioned

$26,517,614
$ 6,576,057
$ 1,144,953

N/A
$3,529,915
$684,598

$26,517,614
$ 3,046,142
$ 460,355

$34,801,286
$ 497,987
$ 6,900,000

N/A
N/A
N/A

$34,801,286
$ 497,987
$ 6,900,000

$21,941,224
$98,379,121

N/A
$4,214,513

$21,941,224
$94,164,608

All information related to this audit finding has been referred to the Mississippi
Office of the State Auditor Investigative Division, the United States Department of
Justice, the Office of Inspector General for the United States Department of Health
and Human Services, and the Federal Bureau of Investigation.
Cause

Executive Director JD circumvented internal controls set in place by MDHS in
regards to procurement, monitoring, and other allowable costs controls in order to
direct monies to certain subrecipients, who then directed federal monies to
individuals associated with JD. Additionally, JD used his position as Director to
convince employees at MDHS to collude with him in circumventing controls.
MDHS, in turn, did not appropriately monitor or review expenditures at the
subrecipient level to ensure adherence to allowable cost and activities allowed
guidelines. Personnel at MDHS are not properly trained or educated in regards to
allowable cost provisions. Lastly, personnel at MDHS either disregarded
established policies and procedures, or were not aware policies and procedures
existed.

Effect

Due to high risk of additional fraud, waste, and abuse other than what has been
reported to authorities or detailed in this report, auditor questioned the entire grant
award amounts to certain subrecipients. Uniform Grant Guidance includes
remedies for non-compliance with federal regulations, including, but not limited to,
requesting a dollar for dollar reduction in the subsequent year’s grant award for any
money misappropriated or misspent under the Temporary Assistance for Needy
Families Grant. Additionally, the widespread fraud, waste, and abuse has led to
public distrust of MDHS, and a loss of integrity in the public welfare system in the
State of Mississippi.

Recommendation

We recommend the Mississippi Department of Human Services take swift and
immediate action to re-instill trust in the public welfare system in Mississippi by
doing the following actions:
1) Pursue any legal remedies available against those that have contributed to the
widespread fraud, waste, and abuse detailed in this report;
2) Pursue any legal remedies to seize property at MCEC and FRC that was
purchased with federal monies in accordance with the policies of the MDHS
Subgrant Manual;
3) Procure an independent certified public accounting firm to conduct a
widespread forensic audit of MDHS to determine the extent of fraud, waste,

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4)

5)
6)
7)

and abuse in other programs, as well as the TANF program, and of MCEC and
FRC to support any attestation made by MDHS of the allowability of costs, and
report any suspected criminal activity to the Mississippi Office of the State
Auditor;
Conduct internal investigations to determine the pervasiveness of the
knowledge and involvement of former and current MDHS staff in the
widespread fraud, waste, and abuse, and report any suspected criminal activity
to the Mississippi Office of the State Auditor;
Strengthen existing controls to ensure non-compliance with federal regulations
does not continue;
Procure adequate and appropriate training for all staff who are involved in any
federal allowable costs and activities allowed monitoring;
Increase awareness in subrecipients of allowable cost and activities allowed
regulations.

Views of Responsible
Officials

Material Weakness
Material Noncompliance
2019-031

Strengthen Controls to Ensure Compliance with Allowable Cost Requirements of
the Supplemental Nutrition Assistance Program (SNAP).

CFDA Number

10.551 Supplemental Nutrition Assistance Program (SNAP)

Federal Award No.

1283505 (2018 E&T 50%)
1293505 (2019 E&T 100%)

Federal Agency

U.S. Department of Agriculture

Questioned Costs

$684,598

Criteria

Per MDHS’ Subgrant/Agreement Manual Section 5, “The accounting system of
each MDHS subgrantee shall provide the monitors/auditors with adequate
documentation to support the subgrantee’s financial claims. Source documents are
required to support transactions entered into the subgrantee’s record keeping
system. The following is a list of the minimum documentation required for selected
transaction types: …Time sheets and activity reports which reflect the actual hours
worked and duties performed. Time distribution/activity sheets are required when
the employee’s time is charged to more than one subgrant or activity. An approved
travel voucher showing that all travel expenses were incurred for the benefit of the
subgrant; copies of supporting bills including out of state meal receipts, hotel bills,
conference registration fee receipts, and conference agendas.”
Per the Code of Federal Regulations, Title 45- Subtitle a- Subchapter A- Part
200.431, “Pension Plan Costs. Pension plan costs which are incurred in accordance
with the established policies of the non-Federal entity are allowable, provided that:
(1) Such policies meet the test of reasonableness.”

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Per the Code of Federal Regulations, Title 45-Subtitle A- Subchapter A- Part
200.404, “A cost is reasonable if, in its nature and amount, it does not exceed that
which would be incurred by a prudent person under the circumstances prevailing
at the time the decision was made to incur the cost. The question of reasonableness
is particularly important when the non-Federal entity is predominantly federallyfunded. In determining reasonableness of a given cost, consideration must be given
to: (a) Whether the cost is of a type generally recognized as ordinary and necessary
for the operation of the non-Federal entity or the proper and efficient performance
of the Federal award…..”
Per the Code of Federal Regulations, Title 45-Subtitle A- Subchapter A- Part
200.405, “A cost is allocable to a particular Federal award or other cost objective
if the goods or services involved are chargeable or assignable to that Federal award
or cost objective in accordance with relative benefits received. This standard is met
if the cost: (1) Is incurred specifically for the Federal award...”
Condition

During testwork performed related to SNAP Activities Allowed and Allowable
Costs, auditor noted 31 instances in which MDHS made reimbursement payments
to Mississippi Community Education Center (MCEC) for salary, travel, fringe
benefits and education related expenses for an agreement MCEC entered into with
a KLLM Transport Services (KLLM) to provide training to SNAP Employment
and Training (E&T) participants. Allowability of these activities or costs could not
be determined due to the following:
1. MCEC did not provide timesheet information to support the allocation of
salary percentages, nor did it provide supporting documentation relating
to travel expenditures. Information provided to auditors by MCEC and
information provided to MDHS by MCEC did not agree in relation to
salary and wages applied to the grant.
2. The Fringe rate of 26.65 percent used by MCEC includes an unreasonable
percentage of contributions to a 403(b) plan, including a profit sharing
contribution for the Executive Director (NN) and Assistant Executive
Director of MCEC (ZN).
3. Fraud, waste, and abuse noted during review of MCEC that included both
reimbursement and accounting recorded falsification. MCEC initially
submitted reimbursement for KLLM expenses at $8,000 per student cost.
When advised that the $8,000 cost was too high, MCEC submitted new
documentation at $4,000 and documentation for a new program for the
exact amount of unallowed expenditures in the prior submission.
Personnel from KLLM stated that this additional training never occurred.
4. MCEC comingled federal and private funds, as well as lacked a proper
cost allocation system.
The total of the questioned costs amounts to $684,598.
Due to the issues stated above, auditor could not determine if the costs associated
with this subrecipient were allowable, allocable or reasonable to the SNAP
program. Additionally, due to inadequate internal controls regarding payments to
subrecipients, MDHS erroneously advanced a payment in the amount of
$2,615,774 to MCEC on the grant. MCEC returned the payment; however, MCEC
continued to submit payment requests on the grant. These requests were paid using
the contractual services line item of MDHS’ budget rather than the “Amount

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Transferred to Subgrantee” account. Therefore, $511,120 was paid to MCEC
using the appropriate subgrant requests and accounts, and an additional $173,478
was reimbursed using contractual services. Using the wrong accounts can result
in an overpayment of the grant award.
As referenced in Finding 2019-030, the entire amount of SNAP grant funds paid
to MCEC is questioned. The questioned costs for this finding were deducted from
the total to ensure that the same costs were not questioned twice.
Cause

The Former Executive Director circumvented controls and disregarded policies
and procedures related to activities allowable and allowable costs in relation to
expenditures made for Mississippi Community Education Center.
Additionally, MDHS staff were either unaware or incompliant with their own
policies and federal codes of regulations.

Effect

Failure to verify expenditures are allowable, appropriately pay expenditures out of
federal or private funds, and allocate costs correctly can lead to federal funding
being withdrawn or expenditures being paid with incorrect funds. This can also
lead to fraud, waste, and abuse within an agency.

Recommendation

We recommend the Mississippi Department of Human Services strengthen control
procedures in order to properly verify expenditures are allowable and appropriate.
We also recommend that the agency appropriately pay expenditures out of the
correct federal or private funds and allocate the funds correctly across all
expenditures.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials

Material Weakness
Material Noncompliance
2019-032

Controls Should Be Strengthened to Ensure Compliance with Allowable Cost
Requirements of the TANF Program.

CFDA Number

93.558 Temporary Assistance for Needy Families State Programs

Federal Award No.

G1701MSTANF 2017
G1801MSTANF 2018
G1901MSTANF 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

$2,374,752

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Criteria

Per the Code of Federal Regulations (2 cfr 200.437(a)-(b)), “(a) Costs incurred
in accordance with the non-Federal entity’s documented policies for the
improvement of working conditions, employer-employee relations, employee
health, and employee performance are allowable. (b) Such costs will be
equitably apportioned to all activities of the non-Federal entity.”
Per the Code of Federal Regulations (2 cfr 200.404), “A cost is reasonable if,
in its nature and amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time the decision was
made to incur the cost. The question of reasonableness is particularly important
when the non-Federal entity is predominantly federally-funded. In determining
reasonableness of a given cost, consideration must be given to: … (b) The
restraints or requirements imposed by such factors as: sound business
practices; arm's-length bargaining; Federal, state, local, tribal, and other laws
and regulations; and terms and conditions of the Federal award…. (d) Whether
the individuals concerned acted with prudence in the circumstances
considering their responsibilities to the non-Federal entity, its employees,
where applicable its students or membership, the public at large, and the
Federal Government.”
Per the Code of Federal Regulations (2 cfr 200.210), “A Federal award must
include the following information: … Federal Award Performance Goals. The
Federal awarding agency must include in the Federal award an indication of
the timing and scope of expected performance by the non-Federal entity as
related to the outcomes intended to be achieved by the program. In some
instances, (e.g., discretionary research awards), this may be limited to the
requirement to submit technical performance reports (to be evaluated in
accordance with Federal awarding agency policy). Where appropriate, the
Federal award may include specific performance goals, indicators, milestones,
or expected outcomes (such as outputs, or services performed or public impacts
of any of these) with an expected timeline for accomplishment. Reporting
requirements must be clearly articulated such that, where appropriate,
performance during the execution of the Federal award has a standard against
which non-Federal entity performance can be measured. The Federal awarding
agency may include program-specific requirements, as applicable. These
requirements should be aligned with agency strategic goals, strategic
objectives, or performance goals that are relevant to the program.”
Additionally, the Code of Federal Regulations (2 cfr 200.62) States that a nonfederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and

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(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

During testwork performed for the Allowable Costs/Cost Principle requirements
of the TANF program during fiscal year 2019, auditors noted the following
exceptions:


One instance totaling $11,034 in which auditor determined that expenditures
for hotel rooms were associated with a “Law of 16 Conference.” The Law of
16 Conference is a self-help course for employee morale; therefore, costs
should have been equitably apportioned to all activities of the entity, and not
solely the TANF program. All costs associated with the “Law of 16”
conference hotel rooms are questioned;



Questioned costs of $388,145 relating to known expenditures made for “Law
of 16” conferences held by MDHS for MDHS personnel. “Law of 16”
conferences were held by Priceless Ventures, LLC. Priceless Ventures had a
contract with MCEC and FRC, subgrantees of MDHS, to supply these
services. The contract states that it is Priceless Ventures’ responsibility to pay
for all costs associated with the conferences with the contracted sum. As those
contracts with MCEC and FRC were paid with TANF grant money, MDHS
was effectively charging the same expense against the TANF grant
twice. Additionally, things like entertainment and branded items are against
allowable cost regulations. Therefore, all costs associated with the for “Law of
16” conferences are questioned;



Questioned cost of $1,927,573 relating to known expenditures made for Heart
of David (HOD). The HOD grant lacked any discernable performance metrics
and had an inadequate scope of services. HOD also represented itself as a faithbased organization; however, no certifications existed to certify the faith-based
restriction of conducting inherently religious activities with federal monies.
Additionally, entering into a subgrant agreement with HOD created a conflict
of interest due to the personal relationship between an officer of HOD and the
prior Executive Director JD of MDHS. See Finding 2019-030 for more
information.



Questioned cost of $48,000 for payments made to Restore2/Recover2. These
payments were made for opioid training that was allegedly never conducted.
Executive Director JD and the principal of Restore2 (BD) conspired to
fraudulently create invoices, sign in sheets, etc. to justify payment of expenses
when BD was out of state in a luxury rehabilitation facility. See Finding 2019030 for more information.

 
Total questioned costs - $2,374,752
Cause

Staff were either unaware or did not follow policies and procedures related to
Activities Allowed and Allowable Costs of TANF funds. The former Executive
Director JD circumvented controls and disregarded policies and procedures related
to activities allowable and allowable costs in relation to expenditures made for

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Mississippi Community Education Center, Family Resource Center of Northeast
Mississippi, Law of 16, Heart of David, and Restore2, LLC.
Effect

Failure to verify expenditures are allowable, appropriately pay expenditures out of
federal or private funds, and allocate costs correctly can lead to federal funding
being withdrawn or expenditures being paid with incorrect funds. This can also
lead to fraud, waste, and abuse within an agency.

Recommendation

We recommend the Mississippi Department of Human Services strengthen control
procedures in order to properly verify expenditures are allowable and appropriate.
We also recommend that the agency appropriately pay expenditures out of the
correct federal or private funds and allocate the funds correctly across all
expenditures.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials

Material Weakness
Material Noncompliance
2019-033

Controls Should Be Strengthened to Ensure Compliance with Allowable Cost
Requirements of the CCDF Cluster.

CFDA Number

93.575 Child Care and Development Block Grant
93.596 Child Care Mandatory and Matching Funds of the Child Care and
Development Fund

Federal Award

1701MSCCDF 2017
1801MSCCDF 2018
1901MSCCDD 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

$3,532,466

Criteria

The Code of Federal Regulations (45 cfr 98) regulates expenditures of funds under
the Child Care and Development Block Grant (CCDF), including the identification
of allowable costs for CCDF expended through the child care certificate program.
The Mississippi Department of Human Services’ Division of Early Childhood
Care and Development (DECCD) has published the Mississippi Child Care
Payment Program Policy Manual, based on the CCDF State Plan, which
incorporates applicable federal regulations and establishes allowable costs for
child care certificate payments under the CCDF program. Specifically, Section
103.02 of this manual addresses co-payment fees and Section 104.04 addresses
child care certificate rates. Therefore, eligible school-aged children should be
issued certificates that state both full-time and part-time rates eligibility so that the

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provider can record the proper attendance each day (full-time when school is not
in session or part-time when school is in session).
Per the MDHS Subgrant/Agreement Manual, which subgrantees must attest to
have read and understood prior to receiving grant awards, states in Section 5, “The
accounting system of each MDHS subgrantee shall provide the monitors/auditors
with adequate documentation to support the subgrantee’s financial claims. Source
documents are required to support transactions entered into the subgrantee’s record
keeping system. The following is a list of the minimum documentation required
for selected transaction types: …Time sheets and activity reports which reflect the
actual hours worked and duties performed. Time distribution/activity sheets are
required when the employee’s time is charged to more than one subgrant or
activity. An approved travel voucher showing that all travel expenses were
incurred for the benefit of the subgrant; copies of supporting bills including out of
state meal receipts, hotel bills, conference registration fee receipts, and conference
agendas.”
Per the Code of Federal Regulations (2 cfr 200.431), pension plan costs which are
incurred in accordance with the established policies of the non-Federal entity are
allowable, provided that: (1) Such policies meet the test of reasonableness.
Per the Code of Federal Regulations (2 cfr 200.404), a cost is reasonable if, in its
nature and amount, it does not exceed that which would be incurred by a prudent
person under the circumstances prevailing at the time the decision was made to
incur the cost. The question of reasonableness is particularly important when the
non-Federal entity is predominantly federally-funded. In determining
reasonableness of a given cost, consideration must be given to: (a) Whether the
cost is of a type generally recognized as ordinary and necessary for the operation
of the non-Federal entity or the proper and efficient performance of the Federal
award…
Per the Code of Federal Regulations (2 cfr 200.405), a cost is allocable to a
particular Federal award or other cost objective if the goods or services involved
are chargeable or assignable to that Federal award or cost objective in accordance
with relative benefits received. This standard is met if the cost: (1) Is incurred
specifically for the Federal award…
Additionally, the Code of Federal Regulations (2 CFR 200.62) states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and

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(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

In performing allowable cost testwork related to certificate rates and co-pays
during fiscal year 2019, auditor noted the following:


Seven instances out of 120 tested, or 5.8 percent, in which school-aged
children were issued a child care certificate that provided both full-time and
part-time attendance rates, but the provider recorded, and was paid, only fulltime rates during months school was in session. These seven instances resulted
in known questioned costs of $1,981 out of total fiscal year school-aged
certificate payments of $24,462,523 and projected questioned costs of
$751,243;



One instance out of 120 tested, or 1.2 percent, in which the family was deemed
ineligible due to income being higher than 85 percent of average income for
the state. This resulted in a questioned cost of $570 out of total certificate
payments of $86,239,928 and projected questioned costs of $283,363; and



Seventeen instances in which allowability of activities or cost could not be
determined. The total of the questioned costs amounts to $3,529,915. Auditor
noted during the review of the subecipients MCEC and FRC, that the
subrecipients comingled federal and private funds, as well as did not have a
proper cost allocation system. Due to these issues, auditor could not determine
if the costs associated with these sub-recipients were allocable to the CCDF
program or reasonable.

This resulted in known questioned cost of $3,532,466.
As referenced in Finding 2019-030, the entire amount of CCDF grant funds paid
to MCEC is questioned. The questioned costs for this finding were deducted from
that total to ensure that the same costs were not questioned twice.
Cause

Staff were either unware or did not follow identified policies and procedures over
allowable cost requirements.

Effect

Failure of DECCD to properly provide for the payment of part-time rates on the
certificates for school-aged children, ensure child care certificates are active prior
to payment, ensure the proper rate is used based on the age of the child, and to
prevent duplicate child care certificates can result in improper payments to child
care providers, questioned costs and the possible recoupment of funds by the
federal granting agency.

Recommendation

We recommend the Mississippi Department of Human Services' Division of Early
Childhood Care and Development ensure compliance with the allowable costs
requirements of the Child Care and Development Block Grant by strengthening
control procedures to ensure child care certificate rates and co-pays are assigned
and providers paid in accordance with the requirements set forth in the Code of

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Federal Regulations and the Mississippi Child Care Payment Program Policy
Manual.
Repeat Finding

Yes; 2018-049 in 2018; OTH-03 in 2017

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials

Significant Deficiency
Immaterial Noncompliance
2019-034

Strengthen Controls Over Review of Computations and Data for Allowable Cost
Activity Used in the Manual Cost Allocation Process and Review of Indirect Costs
Allocated to Federal Programs.

CFDA Number

10.551 Supplemental Nutrition Assistance Program
93.558 Temporary Assistance for Needy Families State Programs
93.658 Title IV-E Foster Care

Federal Award

12-35-2841 – 19
G1602MSTANF
G1701MSTANF
G1801MSTANF
G1901MSTANF
G1801MSFOST
G1901MSFOST

Federal Agency

United States Department of Agriculture; U.S. Department of Health and Human
Services

Questioned Costs

$1,871

Criteria

The Internal Control - Integrated Framework published by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) specifies that a
satisfactory control environment is only effective when there are adequate control
activities in place. Good internal controls provide that the agency’s statistical units
are used in accordance with the approved Cost Allocation Plans and that the agency
is updating statistical information used for cost allocation on a quarterly basis, and
that a supervisory review/approval of charges are in place.
Additionally, the Code of Federal Regulations (2 cfr 200.62) states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and

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(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

During testwork performed over allowable activities and allowable cost
requirements, auditor noted:


Three instances in which the reporting category charged on the manual cost
allocation spreadsheet did not tie back to a reporting category listed on the
crosswalk;



One instance totaling $1,040 where the auditor noted a charge was for
parking fees related to “Law of 16” conference. Auditors determined
through the audit process that expenditures for “Law of 16” conferences are
questionable. Based on this, auditor will question any indirect expenditures
related to “Law of 16” conferences; and



One instance in which the auditor could not verify proper approval for
expenditures $831.

Cause

Keying error made while entering reporting categories into manual spreadsheet
and staff oversight of review and approval of expenditures. Also, staff responsible
for the review and payment of expenditures were possibly unaware of the
questionable nature of expenditures relating to “Law of 16”.

Effect

Failure to implement proper control could result in over/under allocation funds as
well as the allocation of funds to prohibited expenditures.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls over the review of computations and data used in the cost allocation
process to ensure accurate distribution of costs to federal programs as well as
strengthen controls over the review and approval of expenditures.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
CASH MANAGEMENT
Material Weakness

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Material Noncompliance
2019-035

Controls Should Be Strengthened to Ensure Compliance with Cash Management
Requirements of the TANF program.

CFDA Number

93.558 Temporary Assistance for Needy Families State Programs

Federal Award No.

G1701MSTANF 2017
G1801MSTANF 2018
G1901MSTANF 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

None.

Criteria

The Code of Federal Regulations (2 cfr 200.514(C)(4)) states, “When internal
control over some or all of the compliance requirements for a major program
are likely to be ineffective in preventing or detecting noncompliance, the
planning and performing of testing described in paragraph (c)(3) of this section
are not required for those compliance requirements. However, the auditor must
report a significant deficiency or material weakness in accordance with §
200.516 Audit findings, assess the related control risk at the maximum, and
consider whether additional compliance tests are required because of
ineffective internal control.”
Additionally, the Code of Federal Regulations (2 cfr 200.305(b)) states that
payment methods must minimize the time elapsing between the transfer of funds
from the United States Treasury or the pass-through entity and the disbursement
by the non-Federal entity. Advance payments are allowed provided the nonFederal entity maintains or demonstrates the willingness to maintain both written
procedures that minimize the time elapsing between the transfer of funds and
disbursement by the non-Federal entity, and financial management systems that
meet the standards for fund control and accountability as established in this part.
Advance payments to a non-Federal entity must be limited to the minimum
amounts needed and be timed to be in accordance with the actual, immediate cash
requirements of the non-Federal entity in carrying out the purpose of the approved
program or project. The timing and amount of advance payments must be as close
as is administratively feasible to the actual disbursements by the non-Federal entity
for direct program or project costs and the proportionate share of any allowable
indirect costs. Reimbursement is the preferred method when these advance
payment requirements cannot be met.
Furthermore, the Code of Federal Regulations (2 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;

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(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

During the audit of the Mississippi Department of Human Services (MDHS)
subrecipients MCEC and FRC, auditor noted:


Subrecipients MCEC and FRC were advanced large sums of monies at the
beginning of each grant period.
MDHS informed auditors in meetings held on October 1, 2019 and February
5, 2020 that that they were not able to get sufficient information from MCEC
or FRC throughout the grant period. Considering this failure to receive
information, and overall lack of controls in regards to the activities allowed
and allowable cost provisions of the federal grant, MDHS should have
evaluated the appropriateness of large cash advances to the two subrecipients.
A review of the underlying accounting records at MCEC and FRC indicated
that both subrecipients requested advance payments before expenditures had
been encumbered; thereby building large cash reserves to fund other grants
and private operations. Both entities are funded by primarily federal grants.
MCEC maintained an average monthly cash balance of approximately $4
million in FY 2017, $4.5 million in FY 2018, and $5 million in FY 2019.
FRC maintained an average monthly cash balance of approximately $2 million
in FY 2017, $2 million in FY 2018, and $2.5 million in FY 2019.
These cash management practices are in direct violation of federal regulations
and the Cash Management Improvement Act entered into between the State of
Mississippi and the federal government.

Cause

Staff were either unaware or did not follow identified policies and procedures for
areas that impact the cash management requirements related to Uniform Guidance.

Effect

Failure to verify expenditures are allowable, appropriately pay expenditures out of
federal or private funds, and allocate costs correctly can lead to federal funding
being withdrawn or expenditures being paid with incorrect funds. This can also
lead to fraud, waste, and abuse within an agency.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls in order ensure federal funds are drawn down in accordance with the Cash
Management Information Act and are designed to minimize the time elapsing
between the transfer of funds from the United States Treasury and to the
disbursement of funds.

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April 22, 2020
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Repeat Finding

No.

Statistically Valid

No.

View of Responsible
Officials
_____________________________________________________________________________________
ELIGIBILITY
Significant Deficiency
Immaterial Noncompliance
2019-036

Controls Should Be Strengthened to Ensure Compliance with Eligibility and
Benefit Payment Requirements of the CCDF Cluster.

CFDA Number

93.575 - Child Care and Development Block Grant
93.596 - Child Care Mandatory and Matching Funds of the Child Care and
Development Fund

Federal Award

1701MSCCDF 2017
1801MSCCDF 2018
1901MSCCDD 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

$2,030

Criteria

The Code of Federal Regulations (45 cfr Part 98.20) sets forth the eligibility
requirements for a child to receive child care services. The Code of Federal
Regulations (45 cfr Part 98.50) further states how the Child Care and Development
Block Grant (CCDF) funds should be expended for issuance of child care
certificates. The Mississippi Department of Human Services’ Division of Early
Childhood Care and Development (DECCD) has published the Mississippi Child
Care Payment Program Policy Manual, based on the CCDF State Plan, which
incorporates applicable federal regulations and establishes eligibility criteria to
receive child care certificate payments under the CCDF program. Specifically,
Chapter 1 of this manual addresses family and child eligibility requirements,
including the requirement that an eligible child be less than 13 years of age, or 18
if the eligible child has special needs.
Additionally, the Code of Federal Regulations (2 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;

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(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

Based on eligibility testwork in regards to the CCDF program, out of 120 child
care certificate payments made during fiscal year 2019, auditor noted the following
exceptions:


Five instances in which the certificate file did not contain a certified and
complete Child Care Payment Program application or redetermination form as
applicable for certificate tested;



Five instances in which it could not be verified that the child either resides
with a parent who is receiving TANF, working, or attending a jobtraining/education program or is a FC/PS/HHM referral due to lack of
sufficient supporting documentation;



Five instances in which it could not be verified that the child resides with a
family whose income does not exceed 85 percent of the State median income
level due to lack of sufficient supporting documentation;



14 instances in which certificate copay amounts could either not be verified
due to lack of sufficient supporting documentation or were incorrectly
computed; and



One instance of ineligibility due to incorrect amount of income being entered
into CCPS.

This resulted in known questioned costs of $2,030 and a projected questioned
cost of $78,967.
Cause

Staff were either unaware or did not follow identified policies and procedures for
CCDF eligibility determinations.

Effect

Failure to ensure a child care certificate applications are complete and accurate
could result improper payments to a child care provider representing questioned
costs and the possible recoupment of funds by the federal granting agency.

Recommendation

We recommend the Mississippi Department of Human Services’ Division of Early
Childhood Care and Development ensure compliance with the eligibility costs
requirements of the Child Care and Development Block Grant. We also
recommend strengthening control procedures to ensure child care certificate rates
and copays are assigned in accordance with rules and regulations.

Repeat Finding

Yes – 2018-048 in 2018; 2017-035 in 2017; 2016-025 in 2016; 2015-002 in 2015;
2014-010 in 2014.

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Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
MATCHING, LEVEL OF EFFORT, EARMARKING
Significant Deficiency
Immaterial Noncompliance
2019-037

Controls Should Be Strengthened to Ensure Compliance with Matching
Requirements of the CCDF Cluster.

CFDA Number

93.575 Child Care and Development Block Grant
93.596 Child Care Mandatory and Matching Funds of the Child Care and
Development Fund

Federal Award

1601MSCCDF 2016
1701MSCCDF 2017
1801MSCCDF 2018
1901MSCCDD 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

None.

Criteria

Per the Code of Federal Regulations (2 cfr 200 Appendix XI, Compliance
Supplement), In-Kind contributions should be valued in accordance with 2 cfr
sections 200.306, 200.434 and 200.414 along with the terms and conditions of the
award.
Additionally, the Code of Federal Regulations (2 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

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April 22, 2020
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Condition

Based on matching testwork for the CCDF program, auditors noted that the MDHS
was not able to provide monthly reporting worksheets of in-kind donations.
Additionally, MDHS does not require subrecipients to attach supporting
documentation for in-kind expenditures. Due to the lack of supporting
documentation, the auditor was unable to verify the values placed of those in-kind
contributions are in accordance with Uniform Grant Guidance.

Cause

The Mississippi Department of Human Services does not require sub-recipients to
submit supporting documentation for in-kind contributions.

Effect

Failure to require sub-recipients to submit supporting documentation regarding
their claims for in-kind contributions could result in the improper valuation of inkind contributions, inaccurate reporting of those in-kind contributions on the
quarterly AFC-696 reports, and improper matching of federal funds.

Recommendation

We recommend the Mississippi Department of Human Services require
subrecipients to provide supporting documentation, such as a listing of
contributions and the method of the valuation of those contributions, for in-kind
contributions claimed by the Mississippi Department of Human Services on its
quarterly AFC-696 reports.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
PERIOD OF PERFORMANCE
Significant Deficiency
Immaterial Noncompliance
2019-038

Controls Should Be Strengthened to Ensure Compliance with the Period of
Performance for the CCDF Program.

CFDA Number

93.575 - Child Care and Development Block Grant
93.596 - Child Care Mandatory and Matching Funds of the Child Care and
Development Fund

Federal Award

1701MSCCDF 2017
1801MSCCDF 2018
1901MSCCDD 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

$46,264

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Criteria

The Code of Federal Regulations (45 cfr 98.60), requires both the Federal and nonFederal share of the Matching Fund shall be obligated in the fiscal year in which
the funds are granted and liquidated no later than the end of the succeeding fiscal
year.
The Code of Federal Regulations (2 cfr 200.62), states that a non-Federal entity
must have internal control over compliance designed to provide reasonable
assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

Condition

During testwork performed over Period of Performance requirements, auditor
noted two instances in which the liquidation of funds totaling $46,264 did not
occur within the Period of Performance of the federal grants.

Cause

Subrecipient close-out reports were not submitted timely.

Effect

Expenditures were made to a federal award/grant beyond the period of
performance, resulting in questioned costs.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls over the grant close-out process to ensure liquidations are performed
during the grant period.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
PROCUREMENT, SUSPENSION, AND DEBARMENT
Material Weakness
Material Noncompliance

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April 22, 2020
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2019-039

Strengthen Controls Over Procurement Policies and Awarding Subgrants for the
TANF program.

CFDA Number

93.558 Temporary Assistance for Needy Families State Programs

Federal Award No.

G1901MSTANF 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

$72,000

Criteria

Per the Code of Federal Regulations (45 cfr 200.331(b)), all pass-through
entities must: … Evaluate each subrecipient's risk of noncompliance with
Federal statutes, regulations, and the terms and conditions of the subaward…
Per the Code of Federal Regulations (45 cfr 200.319(a)), All procurement
transactions must be conducted in a manner providing full and open
competition consistent with the standards of this section. In order to ensure
objective contractor performance and eliminate unfair competitive advantage,
contractors that develop or draft specifications, requirements, statements of
work, or invitations for bids or requests for proposals must be excluded from
competing for such procurements. Some of the situations considered to be
restrictive of competition include but are not limited to: … (5) Organizational
conflicts of interest.
Per the Code of Federal Regulations (45 cfr 200.320(b)), procurement by small
purchase procedures. Small purchase procedures are those relatively simple
and informal procurement methods for securing services, supplies, or other
property that do not cost more than the Simplified Acquisition Threshold. If
small purchase procedures are used, price or rate quotations must be obtained
from an adequate number of qualified sources.” Additionally, per Chapter 3
Section 205.02 of the State of Mississippi Procurement Manual that was in
effect during the time period these contracts were awarded, “Insofar as it is
practical for small purchases of services greater than $50,000 and not
exceeding $75,000, no less than three (3) sources shall be solicited to submit
written responses that are recorded and placed in the procurement file… If this
method is used, award shall be made to the vendor offering the lowest and best
bid or proposal. In the event three written responses are not obtained, the
agency shall include a memo to the procurement file explaining why this was
not accomplished.
Per the Code of Federal Regulations (45 cfr 200.404), a cost is reasonable if,
in its nature and amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time the decision was
made to incur the cost. The question of reasonableness is particularly important
when the non-Federal entity is predominantly federally-funded. In determining
reasonableness of a given cost, consideration must be given to: …(b) The
restraints or requirements imposed by such factors as: sound business
practices; arm's-length bargaining; Federal, state, local, tribal, and other laws
and regulations; and terms and conditions of the Federal award.

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Additionally, per the Code of Federal Regulations (45 cfr 200.62), states that a
non-Federal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Condition

During testwork performed for the Procurement, Suspension, and Debarment
requirements of the TANF program during fiscal year 2019, auditor noted the
following:
For Procurement, Suspension and Debarment relating to subawards:


Through discussions with MDHS upper management, auditor became aware
of the prior Executive Director JD’s direct involvement in the TANF subaward
process. Executive Director JD, at his sole discretion, awarded subrecipients
without following any type of competitive RFP process. Policies in place at
the time these awards were granted stated that a scoring process would be
utilized to ensure fair and equitable awards were distributed. The policies were
disregarded.



Agency did not perform risk assessments of subawards as noted in Finding
2019-030. Due to this failure to perform risk assessments, MDHS did not have
any objective basis to evaluate the performance of subrecipients from prior
grant years to ensure compliance with federal regulations.

For Procurement, Suspension and Debarment relating to Contractual Services:


Two instances in which auditor noted the agreement was not secured in a
manner that provided full and open competition. Throughout the audit process,
the auditor determined that MDHS entered into agreements with contractors
that had personal relationships with the former Executive Director, and/or did
not engage in proper procurement processes (refer to Finding 2019-030).
Based on this information, any costs associated with these contracts would be
unreasonable. See details regarding two instances below:
o

Auditor noted a personal relationship between the former Executive
Director JD and the president of NCC Ventures. Executive Director JD
also hired an immediate family member of the president of NCC Ventures
to work in MDHS’ Executive office during the contract period.

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Additionally, MDHS only sent out three invitations/solicitations to bid,
and only NCC Ventures responded to the solicitation. The contract’s
scope included “studying and measuring how well the public workforce
system is meeting employer needs” and “engaging employers on behalf of
MDHS client to assist in improving opportunity and outcomes in the
workforce.” Federal procurement regulations require that a “reasonable
number” of bids be evaluated. The remaining two businesses were not
located in Mississippi and were not registered with the Mississippi
Secretary of State’s Office. When auditors inquired of personnel at the
other two businesses solicited as to why they did not respond to the
solicitation, one informed auditor that his expertise was in construction
management and had nothing to do with the project scope of workforce
development.
Total amount paid on the contract of $72,000 is questioned.
o

Auditor noted a personal relationship between prior Executive Director JD
and an officer of Restore2, LLC (BD). BD was a former employee of
MDHS. Contract for $48,000 was executed by Restore2 and MDHS for
opioid training sessions. Based on information uncovered during an
investigation of these payments due to fraud, waste, and abuse, auditors
noted that work on this contract was not performed as stated in supporting
documentation and that the purpose and need of the contract was
fabricated by former Executive Director JD.

Cause

Staff were not aware or did not follow policies and procedures over the
procurement of contractual services. Additionally, procurement procedures were
not adequately performed in order to ensure open and free competition.

Effect

Failure to abide by procurement guidelines of both federal and state regulatory
authorities could result in inappropriate contracts and payments, which could result
in a clawback of federal monies. Additionally, disregarding policies and controls
could lead to fraud, waste, and abuse.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls to ensure compliance with state and federal regulations over the
procurement of contracts.
Additionally, we recommend the Mississippi
Department of Human Services establish updated grant award policies in regards
to their responsibility as a federal grant pass through.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials

Significant Deficiency

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April 22, 2020
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2019-040

Controls Should Be Strengthened Over Procurement of Subrecipients for SNAP.

CFDA Number

10.551 Supplemental Nutrition Assistance Program (SNAP)
10.561 State Administrative Matching Grants for the Supplemental Nutrition
Assistance Program

Federal Award No.

2018 SNAP E&T 50%
2019 SNAP E&T 100%
2019 USDA Outreach
2019 TEFAP

Federal Agency

U.S. Department of Agriculture

Questioned Costs

None.

Criteria

Per the Code of Federal Regulations (45 cfr 200.331 (b)), all pass-through entities
must: … Evaluate each subrecipient's risk of noncompliance with Federal statutes,
regulations, and the terms and conditions of the subaward…
The Integrated Framework published by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) specifies that a
satisfactory control environment is only effective when there are adequate
control activities in place. Effective control activities dictate agencies maintain
written policies and procedures in maintaining a good control environment.
Additionally, the Code of Federal Regulations (2 cfr 200.303(a)), states
agencies should, “Establish and maintain effective internal control over the
Federal award that provides reasonable assurance that the non-Federal entity
is managing the federal awards in compliance with Federal statutes,
regulations, and the terms and conditions of the Federal award.” Without
written policies and procedures, the auditor is unable to substantiate nonwritten policies.
Furthermore, the Code of Federal Regulations (45 cfr 200.62) states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

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April 22, 2020
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Condition

When performing testwork related to SNAP Procurement, Suspension, and
Debarment, auditors noted the following:


Out of the eight items sampled, two were for Skills2Work partner assessments.
Skills2Work is a workforce development project designed to leverage federal
funds to help the State scale career and technical education programs so that
they are more accessible to low-income families. Companies that want to
become a partner in the program, and receive a reimbursement of up to 40
percent of the allowable program cost, must fill out an application, scope of
services, budget narrative and estimate and apply at MDHS.
MDHS stated that all Skills2Work industry “partners” are required to receive
a partner assessment. These assessments are used to evaluate the partner’s
viability based on the program criteria and the ability to service those
individuals who qualify for SNAP benefits.
MDHS supplied auditors with a copy of the partner assessment template, but
was unable to provide auditors with the actual assessments used to evaluate
the partners for admission to the program. Auditors inquired if there were any
written policies and procedures for the partner assessments, and were provided
an additional copy of the partner assessment template and the Subgrantee
Manual used for all MDHS subgrants. Auditors were able to find a brochure
sent to partners about the program, and a toolkit template on the MDHS
website, but no other information was provided by MDHS. Auditor
determined that all policies were verbal, and that there were not adequate
controls over the partnership assessments.



Out of eight items sampled, one contract was for MCEC and one contract was
for FRC. Due to the direct involvement of former Executive Director JD,
auditor not verify these contracts were entered into using arms-length
bargaining.



Out of eight items sampled, MDHS did not provide any supporting
documentation for the procurement of the remaining four contracts; therefore,
auditor cannot ascertain whether procurement is valid.

Cause

Inadequate procedures and a failure to follow other established policies by MDHS
personnel. Policies for Skills2Work were verbal directives only, causing
inconsistencies among staff.

Effect

Without proper policies, procedures, and documentation to support costs,
ineligible participants could be admitted to the Skills2Work program; thereby,
causing an unallowable cost.

Recommendation

We recommend Mississippi Department of Human Services strengthen the
controls and prepare written policies and procedures over the procurement process
of the Skills2Work program.

Repeat Finding

No.

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April 22, 2020
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Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
REPORTING
Significant Deficiency
2019-041

Controls Should Be Strengthened over the Submission of Required Federal
Reports for the TANF Program.

CFDA Number

93.558 Temporary Assistance for Needy Families State Programs

Federal Award No.

G1701MSTANF 2017
G1801MSTANF 2018
G1801MSTANF 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

None.

Criteria

The Code of Federal Regulations (45 cfr 265.3), requires a “TANF Data Report”
(ACF-199) for the Temporary Assistance to Needy Families (TANF) program to
be completed and submitted in accordance with instructions provided by the
Administration for Children and Families (ACF). Those instructions require States
to submit quarterly reports for each open fiscal year of grant funds until all funds
are expended; therefore, States will likely submit separate forms for multiple grant
award years simultaneously. These reports are due and must be submitted 45 days
after the end of each quarter.
Additionally, the Code of Federal Regulations (45 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

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April 22, 2020
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Condition

During testwork performed for TANF reporting for FY 2019, auditor noted the
following:


Data required to be submitted for the T-199 report, QE December 31, 2018
was not submitted within 45 days after the end of the reporting period. Data
was submitted 144 days late; and



Data required to be submitted for the T-199 report, QE June 30, 2019 was not
submitted within 45 days after the end of the reporting period. Data was
submitted 6 days late.

Cause

Staff were either unaware or did not follow policies and procedures related to
federal reporting requirements.

Effect

Failure to timely review and submit reports could result in reporting penalties and
could impact funding determinations.

Recommendation

We recommend Mississippi Department of Human Services strengthen the
controls over the preparation, review and timely submission of required
performance and financial reports prior to submission to the Department of Health
and Human Services.

Repeat Finding

No.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
SUBRECIPIENT MONITORING
Material Weakness
Material Noncompliance
2019-042

Controls Should Be Strengthened over On-Site Monitoring for the Supplemental
Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families
(TANF), Child Care and Development Block Grant (CCDF), Low Income Home
Energy Assistance Program (LIHEAP), and Social Services Block Grant (SSBG)
Programs.

CFDA Number

10.551 Supplemental Nutrition Assistance Program
93.558 Temporary Assistance for Needy Families State Programs
93.667 Social Services Block Grant
93.575 Child Care and Development Block Grant
93.596 Child Care Mandatory and Matching Funds of the Child Care and
Development Fund
93.568 Low Income Home Energy Assistance Program

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Federal Award No.

G1701MSTANF 2017
G1801MSTANF 2018
G1801MSCCDF 2018

SNAP – Letter of Credit
G1801MSSOSR 2018
G18B1MSLIEA 2018

Federal Agency

United States Department of Agriculture, U.S. Department of Health and Human
Services

Questioned Costs

None.

Criteria

The terms and conditions of the grant agreements between the Mississippi
Department of Human Services (MDHS) and the U.S. Department of Health and
Human Services require MDHS to administer grants in compliance with the Code
of Federal Regulations (2 cfr 200).
The Code of Federal Regulations (2 cfr 200.331) requires MDHS to properly
identify subaward requirements to subrecipients, evaluate the risk of
noncompliance for each subrecipient, and monitor the activities of subrecipients
as necessary to ensure that subawards are used for authorized purposes, complies
with the terms and conditions of the subawards and achieves performance goals.
We evaluated MDHS’s compliance with subrecipient monitoring requirements
based on written policies and procedures designed by MDHS’s Division of
Program Integrity – Office of Monitoring (OM) to satisfy during-the-award
monitoring requirements. OM procedures require an on-site monitoring review of
each subgrantee contract at least once during the subgrant period. A tracking
mechanism is used to ensure all subgrantee contracts are properly identified and
monitored. Monitoring tools/checklists are used during each on-site monitoring
review to provide guidance and to document a review was performed. The on-site
monitoring workpapers are reviewed and approved by OM supervisory personnel
prior to issuance of a written report, the Initial Report of Findings &
Recommendations, which is used for communicating finding(s) and/or questioned
costs to subgrantees. The written report should be issued within 30 working days
from the date of the exit conference, which is normally held on the last day of the
on-site review.
The Code of Federal Regulations (2 cfr 200.328(a)), states the non-Federal entity
is responsible for oversight of the operations of the Federal award supported
activities. The non-Federal entity must monitor its activities under Federal awards
to assure compliance with applicable Federal requirements and performance
expectations are being achieved. Monitoring by the non-Federal entity must cover
each program, function or activity. See also § 200.331 Requirements for passthrough entities.
The Code of Federal Regulations (2 cfr 200.328(b)(2)), states the non-Federal
entity must submit performance reports using OMB-approved government-wide
standard information collections when providing performance information. As
appropriate in accordance with above mentioned information collections, these
reports will contain, for each Federal award, brief information on the following
unless other collections are approved by OMB:
(i) A comparison of actual accomplishments to the objectives of the Federal award
established for the period. Where the accomplishments of the Federal award can

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be quantified, a computation of the cost (for example, related to units of
accomplishment) may be required if that information will be useful. Where
performance trend data and analysis would be informative to the Federal awarding
agency program, the Federal awarding agency should include this as a performance
reporting requirement.
(ii) The reasons why established goals were not met, if appropriate.
(iii) Additional pertinent information including, when appropriate, analysis and
explanation of cost overruns or high unit costs.
The Code of Federal Regulations (2 cfr 200.331(6)(b)), states: Evaluate each
subrecipient’s risk of noncompliance with Federal statutes, regulations, and the
terms and conditions of the subaward for purposes of determining the appropriate
Subrecipient monitoring described in paragraph (e) of this section.
Additionally, the Code of Federal Regulations (45 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.
Furthermore, The Internal Control – Integrated Framework published by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
Manual specifies that a satisfactory control environment is only effective when
there are adequate control activities in place.
Condition

During testwork performed on subrecipient on-site monitoring for 84 subgrant
contracts during state fiscal year 2019, auditor noted the following exceptions:


During conversations with upper management of MDHS, auditor noted that
prior Executive Director JD would circumvent controls of the monitoring
process for certain subrecipients. Monitoring visits were called short and
monitors were recalled to MDHS and reassigned if issues were found during
monitor visits. This direct involvement of the former Executive Director and
the disregard of controls resulted in a lack of integrity in the monitoring
process. Monitoring reports could not be relied upon during testwork as
auditors could not determine what, if any, appropriate monitoring actually
occurred for subgrants. No other staff at MDHS reported to the Mississippi
Office of the State Auditor that monitors were being recalled and controls were
being circumvented by Executive Director JD. Additionally, testwork

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determined widespread fraud, waste, and abuse at two of the largest
subrecipients of TANF funds. Monitoring reports for prior year grants did not
indicate any questioned costs at these subrecipients, regardless of the
subrecipients repeatedly participating in unallowable activities. Auditors
noted substantial violations of the Subgrant Manual by both MCEC and FRC
in regards to asset purchases, indirect costs, allowable costs, etc. These
violations and the fraud, waste, and abuse uncovered during the audit verify
that subrecipients were not properly monitored.


Seven contracts, or 8 percent, in which corrective actions were not received
from the subrecipient within 15 working days from the date the report was
issued, or auditor could not verify corrective actions were received timely due
to lack of audit trail.
o Corrective Actions for one contract were received 21 days from the
Initial Monitoring Report (IMR),
o For six contracts, auditor could not verify corrective actions were
necessary, or received timely, due to lack of audit trail;



Eleven contracts, or 13 percent, in which the IMR was not issued within 60
working days from the date of the exit conference, or auditor could not
determine when it was issued due to lack of audit trail.
o IMRs were issued between 66 and 261 days late, with an average of
124 working days after the exit conference took place;



Six contracts, or 7 percent, in which the IMR was not included in monitoring
file; therefore, supervisory approval prior to issuance of the report to the
subrecipient could not be verified;



Six contracts, or 7 percent, in which we were unable to determine if questioned
costs had been completely resolved as of the date of testwork;



Six contracts, or 7 percent, in which the auditor could not verify monitoring
took place during the contract period due to lack of documentation in
monitoring file;



Twenty-five (25) contracts, or 30 percent, in which the Monitoring Supervisor
Checklist was dated after the IMR letter, or was not included in the file,
therefore Monitoring Supervisor Review Checklist approval prior to issuance
of the IMR letter could not be verified;



Five contracts, or 6 percent, in which the On-Site Monitoring review of the
Subrecipient was not performed during the subgrant period;



Three contracts, or 3 percent, in which the Subgrants were not monitored in
federal FY 2018; and

In addition, the MDHS Office of Monitoring (OM) did not evaluate the risk of
noncompliance of its subrecipients in order to perform monitoring procedures
based upon identified risks, as is a requirement of Uniform Guidance.

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Cause

Staff were either unaware or did not follow identified policies and procedures for
monitoring requirement. Additionally, per documentation obtained by auditors,
former Executive Director JD colluded with MDHS personnel to undermine the
monitoring of subrecipients and circumvented controls in order to delay or stop
monitoring of certain subrecipients.

Effect

MDHS programmatic funding divisions rely upon OM monitoring procedures to
verify compliance with program regulations and to identify potential problem areas
needing corrective action. Failure to properly monitor subreceipients in a timely
manner could allow noncompliance with federal regulations to occur and go
undetected, potentially resulting in questioned costs.

Recommendation

We recommend the Mississippi Department of Human Services’ Division of
Program Integrity – Office of Monitoring (OM) strengthen controls over
subrecipient monitoring. OM should evaluate the risk of noncompliance of each
subrecipient and perform monitoring procedures based upon identified risks. We
also recommend the agency ensure subawards are monitored timely and that the
“Report of Findings & Recommendations” prepared as a result of the on-site
monitoring be issued in a timely manner to enable immediate corrective action
procedures to be initiated. We further recommend that the agency maintain all
supporting monitoring tools, reports, and correspondence in the monitoring file.

Repeat Finding

Yes – 2018-046 in 2018; 2017-037 in 2017; 2016-027 in 2016; 2015-005 in 2015;
2014-017 in 2014; 2013-015 in 2013.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials

Material Weakness
Material Noncompliance
2019-043

Strengthen Controls Over Subrecipient Monitoring to Ensure Compliance with
OMB Uniform Guidance Auditing Requirements.

CFDA Number

10.551 Supplemental Nutrition Assistance Program
93.558 Temporary Assistance for Needy Families State Programs
93.575 Child Care and Development Block Grant
93.596 Child Care Mandatory and Matching Funds of the Child Care and
Development Fund
93.667 Social Services Block Grant
93.568 Low Income Home Energy Assistance Program

Federal Award No.

G1801MSTANF 2018
G1701MSCCDF 2017
G1801MSCCDF 2018
SNAP – Letter of Credit

G1801MSSOSR 2018
G17B1MSLIEA 2017
G18B1MSLIEA 2018

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Federal Agency

U.S. Department of Agriculture, U.S. Department of Health and Human Services

Questioned Costs

None

Criteria

The Office of Management and Budget (OMB) Uniform Guidance states the
pass-through entity is responsible for (1) ensuring that subrecipients expending
$750,000 or more in Federal awards during their fiscal year have met the audit
requirements of OMB Uniform Guidance and that the required audits are
completed within nine months of the end of the subrecipient’s audit period; (2)
issuing a management decision on findings within 6 months after receipt of the
subrecipient’s audit report; and (3) ensuring that the subrecipient takes timely
and appropriate corrective action on all audit findings. In cases of continued
inability or unwillingness of a subrecipient to have the required audits, the
pass-through entity shall take appropriate action using sanctions.
Additionally, the Code of Federal Regulations (45 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

Condition

During the audit of the Mississippi Department of Human Services (MDHS),
auditor reviewed the Division of Program Integrity – Office of Monitoring (OM)
audit files and Monitoring Tracking Document for MDHS Subgrantees for state
fiscal year 2017. During our review, we noted the following weaknesses:


Auditor noted the SFY 2017 Single Audit Tracking System utilized by the
MDHS Office of Monitoring to track the status of OMB Uniform Guidance
audits for DHS subrecipients does not include expenditures made by the subrecipient nor does it include all sub-recipients who received federal funds from
MDHS during FY 2017. The audit requirements of the Code of Federal
Regulations (2 cfr Part 200, subpart F) are based on expenditures of Federal
awards; therefore, subrecipients of MDHS could have expended Federal
awards in excess of amounts that require a single audit that may have not been
included on MDHS’s tracking document. The agency was not able to provide
an expenditure report to the auditors in order to ensure completeness of the
monitoring files.

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

Three instances in which the Office of Monitoring could not provide an OMB
monitoring file for the sub-recipient; therefore, auditor could not determine
compliance with OMB monitoring procedures;



Nineteen (19) instances in which the Office of Monitoring failed to send out
reminder letters within a timely manner. Reminder letters were mailed on
February 6, 2019, on average 7.5 months after the due dates of audit reports;
and



Eighteen (18) instances where the OMB Uniform Guidance audit report for
the subgrantee was not received by Office of Monitoring within nine months
of the subgrantee’s fiscal year end. Subgrantee audit reports were received on
average 213 days after the nine-month deadline.

Cause

Staff were either unaware or did not follow identified policies and procedures for
subrecipient monitoring related to Uniform Grant Guidance.

Effect

Failure to properly monitor subrecipients could allow noncompliance with federal
regulations to occur and go undetected, potentially resulting in fraud, waste, and
abuse within the agency.

Recommendation

We recommend the Mississippi Department of Human Services’ Division of
Program Integrity – Office of Monitoring (OM) strengthen controls over
subrecipient monitoring for OMB Uniform Guidance audits to ensure recipients
expending $750,000 or more in Federal funds during their fiscal year are
appropriately monitored and that the appropriate federal audit is obtained. We
further recommend that OM design a monitoring tool based on expenditures
incurred by subrecipients to ensure all subrecipients are included on the tracking
report and continue to follow-up with subgrantees in a timely to ensure compliance
with audit requirements.

Repeat Finding

Yes – 2018-047 in 2018; 2017-038 in 2017; 2016-028 in 2016; 2015-009 in 2015;
2014-016 in 2014.

Statistically Valid

The sample is considered statistically valid.

View of Responsible
Officials
_____________________________________________________________________________________
SPECIAL TESTS AND PROVISIONS
Significant Deficiency
2019-044

Controls Should Be Strengthened over the Review of Foster Care Maintenance
Payment Rates and the Calculation of Foster Care Maintenance Payments.

CFDA Number

93.658- Foster Care Title IV-E

Federal Award No.

G1801MSFOST 2018

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G1901MSFOST 2019
Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

None.

Criteria

Internal Control – Integrated Framework published by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) specifies that a
satisfactory control environment is only effective when there are adequate control
activities in place. Effective control activities dictate that the agency perform a
multi-level review of the rates being entered into Mississippi Automated Child
Welfare System (MACWIS), as well as at least annual tests over MACWIS to
ensure the system is properly calculating Foster Care Maintenance payments.
Additionally, the Code of Federal Regulations (45 cfr 200.62), states that a nonFederal entity must have internal control over compliance designed to provide
reasonable assurance that;
(a) Transactions are properly recorded and accounted for, in order to:
(1) Permit the preparation of reliable financial statements and Federal
reports;
(2) Maintain accountability over assets; and
(3) Demonstrate compliance with Federal statutes, regulations, and the
terms and conditions of the Federal award;
(b) Transactions are executed in compliance with:
(1) Federal statutes, regulations, and the terms and conditions of the
Federal award that could have a direct and material effect on a Federal
program; and
(2) Any other Federal statutes and regulations that are identified in the
Compliance Supplement; and
(c) Funds, property, and other assets are safeguarded against loss from
unauthorized use or disposition.

Condition

During testwork performed related to Foster Care Special Tests and Provisions,
auditor noted that proper controls are not in place to ensure the accuracy of
payment rates within the MACWIS system, nor are controls in place to ensure the
accuracy of payment calculations.

Cause

Staff is unaware of the importance of an internal control structure.

Effect

Failure to implement proper internal controls could result in inaccurate payment
rates and payment calculations.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls over the review of payment rates being entered into MACWIS, as well as
perform tests over the accuracy of payment calculations within MACWIS.

Repeat Finding

No.

Statistically Valid

Sample is considered statistically valid.

View of Responsible
Officials

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OTHER AUDIT FINDING
In planning and performing our audit of the federal awards received by the Mississippi Department of
Human Services for the year ended June 30, 2019, we considered internal control over compliance with the
requirements that could have a direct and material effect on the major federal programs. Matters which
require the attention of management were noted. These matters which do not have a material effect on the
agency’s ability to administer major federal programs in accordance with applicable laws, regulations, or
provisions of contracts or grant agreements involve an immaterial instance of noncompliance and other
internal control deficiencies.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis.
Finding and Recommendation
ELIGIBILITY
Control Deficiency
OTH – 19-01

Controls Should Be Strengthened over Segregation of Duties and Granting Access
to MAVERICS.

CFDA Number

93.558 Temporary Assistance for Needy Families State Programs

Federal Award

G1901MSTANF 2019

Federal Agency

U.S. Department of Health and Human Services

Questioned Costs

None.

Criteria

Good internal controls state that segregation of duties must be in place to help
prevent and detect misappropriation of funds due to error or fraud. Because of the
high percentage of employees with access to MAVERICS, it is necessary to
maintain controls over who can both enter and approve benefits so that an
unnecessary risk to MDHS does not exist. MAVERICS serves as the primary
TANF computer interface for Eligibility determinations for the State of
Mississippi.
Under TANF Eligibility Determination Process in Chapter 7, Certification and
Authorization, of the TANF policy published on the MDHS website, Authorization
is an official act, usually performed by the county director or their designee,
certifying as to the eligibility or continuing eligibility of any assistance payments
group. The authorization requests the issuance of a TANF benefit and authorizes
the expenditures of public tax funds.

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Additional criteria from the MDHS Management Information Systems (MIS)
Division policy states that system administrators will conduct Self-Audits of all
user accounts on a semi-annual basis, at a minimum.
Condition

During testwork performed on MAVERICS User Access during fiscal year 2019,
we noted the following:


Of the 40 MAVERICS profiles examined, two instances were noted in
which a RACF profile was active for a terminated employee; and



Of the 40 MAVERICS profiles examined, two instances where employees
had been inactive for more than 90 days.

Cause

Agency does not effectively follow policy or procedures for deleting or amending
MAVERICS user access.

Effect

Failure to strengthen controls over MAVERICS access could allow basic TANF
benefits can be certified/approved by personnel not authorized to certify/approve
a payment.

Recommendation

We recommend the Mississippi Department of Human Services strengthen
controls over access to MAVERICS.

Repeat Finding

Yes; OTH-18-04 in 2018; OTH–17-04 in 2017

Statistically Valid

No.

View of Responsible
Officials
End of Report