Nancy New and her son Zach, owners of several for-profit and nonprofit organizations, were well on their way to building an education empire in Mississippi.

Their private schools, called New Summit, had been gaining acclaim, especially for catering to nontraditional students and those with disabilities — the only type students the state can pay private schools to educate.

“School choice” — the concept of allowing tax dollars to follow a student to a private school — was becoming a rallying cry in the Republican-dominated state Legislature.

Lawmakers were shorting public schools hundreds of millions of dollars annually according to state law, including for special education. And apparent holes in oversight at the Mississippi Department of Education were going ignored or unnoticed.

This was the landscape in 2016 when Nancy and Zach New allegedly began defrauding the state out of millions of public school dollars. 

To be sure, Nancy New’s schools have for years provided meaningful services to the small number of Mississippi families they serve. Her lobbying efforts and connections to powerful politicians such as former Gov. Phil Bryant and current Gov. Tate Reeves only served to further legitimize her companies, gaining them unfettered access to the public trough. 

Federal authorities are now accusing the News of scamming the Mississippi Department of Education and the Mississippi Adequate Education Program, the funding formula that is supposed to determine how many state dollars public school districts will receive for each student.

Specifically, the questioned funding comes from a niche program to educate children in state licensed facilities, such as hospitals and psychiatric treatment centers. For over a decade, the News have claimed to serve hundreds of these students each year.

The alleged fraud is reminiscent of previous charges the News still face: In 2020, they were arrested on state charges alleging they embezzled Mississippi Department of Human Services block grant funds, which their nonprofit had received to run social programs for poor adults. The lax federal guidelines around welfare spending made it easy for the New nonprofit, Mississippi Community Education Center, to get its hands on those free-flowing dollars.

But there aren’t many ways for private schools to secure MAEP dollars, since the funding is typically tied to a public school student. 

So, according to the indictments, the News got creative.

The most well-publicized avenue for private schools to capture public school dollars is through Educational Scholarship Accounts, which the Legislature created in 2015 for special-needs students who are not getting enough attention or support from their public schools — possibly as a result of the state’s underfunding of special education in public schools. 

“The privatization groups exploited that concern,” said Nancy Loome, director of the Parents Campaign, a pro-public education advocacy nonprofit. “They used children with special needs as a means to get a foot in the door.”

New Learning Resources has received $3.1 million in voucher payments from the department over the last several years, through hundreds of periodic tuition reimbursements ranging from a couple hundred to several thousand dollars, Mississippi Today found in public expenditure reports.

But these aren’t the funds the News allegedly bilked.

Federal authorities are accusing the News of defrauding an older, lesser-known program called “504 teacher units,” a U.S. Attorney’s Office representative confirmed to Mississippi Today. 

And their involvement in the program — by far their private company’s largest state funding stream — dates back much further than the time period examined in the federal indictment. New Learning Resources has received roughly $20 million in these funds since 2007.

The 504 program is supposed to supply a private teacher for a child after a doctor or psychologist determines the student requires placement in a hospital or licensed psychiatric facility. The state then uses MAEP funds to reimburse the private facility or school that hires the teacher. 

“To me, just having some psychologist or doctor, especially if they work for a facility, say a child needs to be somewhere without any protections in place and the facility will then get money really opens the door to children getting exploited,” said Joy Hogge, executive director of Families as Allies and longtime advocate for families and children with disabilities, developmental delays or behavior disorders.

Compared to the other entities receiving these funds since 2016, when the alleged scheme began, the New Summit schools stick out like a sore thumb. All the other recipients are hospitals or residential psychiatric treatment facilities or their affiliated in-house schools.

The New private schools also received the vast majority of the funding — 61% to as much as 74% each year — for a total of $7.7 million over five years.

Between 2016 and 2020, New Summit School in Jackson and North New Summit School in Greenwood each reported hiring between 10.5 and 16 teachers for the program per year, according to the public records. State education department officials told Mississippi Today each teacher is supposed to serve 10 to 14 students.

That translates to the two tiny private schools purportedly serving between 215 and 434 students — a number that’s more than half or possibly even larger than their total enrollment — with conditions so acute they require placement in a hospital or psychiatric treatment facility and also do not have disabilities.

The two campuses serve a total of 327 students today.

The number of these special teachers New Summit reported hiring is also significantly more than any other facility. University of Mississippi Medical Center, the state’s largest hospital with the state’s only dedicated children’s hospital and in-house school, had just four. 

The Mississippi Department of Education acknowledged in a statement to Mississippi Today that the approval process for this program contained holes.

“MDE should have been on watch and should have been able to catch this. It sounds like they should have anyway,” said former Rep. David Baria, D-Bay St. Louis. 

But in so many ways, it was state leaders and lawmakers who had given this practice their blessing.

“Lot of red flags were raised along the way with respect to this whole process of taking public school dollars and taking that money to private schools, private entities with little to no accountability to the Mississippi Legislature,” Baria said. “We tried to raise as many warnings as we could about the fact that this process was ripe for graft and corruption.”

Prosecutors allege Nancy and Zach New submitted reimbursement claims that were fraudulent in several ways. According to the indictments, the News claimed they employed teachers who no longer worked at New Summit or never worked at the school. They identified some employees as teachers when they were not. They claimed teachers had higher experience and certification level than they did. 

The News also allegedly claimed they were serving students who no longer attended New Summit or had never attended the school. 

Loome said: “What has been reported is really blatant. I mean, we’re not talking about a little bookkeeping error. We are talking about very intentional fraud.”

Officials publicly accused the News of fraudulently obtaining more than $2 million since 2017. Federal prosecutors discussed $5.5 million worth of wire transfers in the indictment, but it’s not clear exactly how much they are alleging was fraudulently obtained.

Prosecutors haven’t outlined where all the money went, but they accused Nancy New of using at least some of the public school dollars to purchase a $250,000 home in northeast Jackson.

For a student to be eligible to receive 504 teacher unit funds, according to Mississippi State Board of Education’s policy manual, they must be placed in a state-licensed facility.

The school appears to qualify as a “state licensed facility” because New Learning Resources became certified by the Mississippi Department of Mental Health for day treatment — sometimes referred to as partial hospitalization.

The student must not qualify for special education under federal law and therefore lack an Individual Education Program plan or IEP.

Only kids with IEPs can secure private school vouchers in Mississippi, hence New Summit seeking out other funding possibilities for children who may need some help but don’t qualify for special education.

Public school advocates worry that the broader school choice movement aims to exploit the voucher program, potentially neglecting students who need the specialized attention the most.

“Private schools are not going to be just clamoring to bring in children like mine,” said Florance Bass, mother of a public school student with Down syndrome.

Instead, Bass believes current efforts to privatize education targets “these kids who are a little bit easier to deal with versus those that require a whole lot of services.”

Private schools have no obligation to accept every child who applies. Anecdotally, one parent Mississippi Today spoke with was turned away from New Summit because her child’s disability presented as behavioral issues.

Ironically, New Summit claimed the majority of its student population were students with acute behavioral disorders and not learning disabilities, according to their 504 submissions to MDE.

Department of Mental Health spokesperson Adam Moore described the duties of certified day treatment facilities: “Day Treatment services promote successful community living through activities like social skills training, and may also include skills training in areas like anger management, problem solving, or conflict resolution.”

None of the other entities receiving 504 funds are day centers. They are either inpatient healthcare or psychiatric residential facilities or affiliated with one.

The other facilities receiving 504 teacher unit funds include:

• Canopy Children’s Solutions’ psychiatric residential facility called CARES Center in Jackson

• CARES Center in Gulfport

• Parkwood Behavioral Health Systems and affiliated Park Academy

• Merit Health Gulf Oaks

• Diamond Grove School of Diamond Grove Behavioral Health Center

• Crossroads Residential Treatment Facility at Brentwood Behavioral Healthcare

• Oceans Behavioral Hospital

There is another program called the Educable Child Program, which is similarly designed to provide funding to private schools to educate children in health department-licensed care facilities. New Learning Resources has received a small amount — $13,340 — through this program over the years. North New Summit School received $133,428 in these funds from 2006 to 2013 under the name of a separate private company called Alternative Youth Services, according to public records from the education department.

The state can also provide education funding to private schools for dyslexia scholarships or through direct legislative appropriations. Lawmakers have allocated a total of $3 million to New Learning Resources and affiliated Mississippi Autism Center starting in 2013, but records show the education department actually paid these “flow through grants” to the New-owned nonprofit Mississippi Community Education Center.

The News have also used at least $400,000 in welfare dollars the state awarded to their nonprofit to lobby the Legislature for public education funds, Mississippi Today first reported. 

The 504 funding came from the education department to New Learning Resources in big chunks. The largest was a nearly $1 million lump sum.

The large payments are reminiscent of the Mississippi Department of Human Services welfare grants that Mississippi Community Education Center received and the News allegedly abused. 

In the case of the welfare scandal, multi-million dollar upfront payments, shoddy accounting and nearly nonexistent accountability created ample opportunity for the alleged embezzlement of more than $4 million. The state agency had required the nonprofit to provide very little justification or proof of what it was accomplishing with the funds.

Agents arrested DHS’ former director, John Davis, along with the News, the nonprofit’s accountant and two others in this alleged scheme. One defendant pleaded guilty; the accountant tried to plead guilty but a judge rejected the deal. The remaining four are still pleading not guilty.

While the state auditor alleged a widespread conspiracy at the welfare agency, federal prosecutors allege the News falsified records in order to scam the education department.

The education department told Mississippi Today in a written statement that the entities receiving 504 funding must maintain documentation showing student eligibility, including medical records showing a physician or psychologists determination that the student needs services from a state licensed facility. 

State policy requires the entities to submit “an assurance” to the education department that it possesses these documents, but doesn’t require they actually submit the records. Private schools generally have little obligation to report their operational practices or outcomes to anyone.

“They are allowed to operate in secret and receive public funds at the same time,” Loome said.

The state agency did not answer questions about how New Summit was able to secure so much 504 funding or why their claims for so many teachers did not raise red flags, citing the ongoing criminal case. Prosecutors have not accused any state employees of participating in the scheme.

“MDE acknowledges there were gaps in the approval process for this program,” the department said in a statement. “… Under new leadership in the MDE Office of Special Education, MDE instituted additional accountability measures in the 2020-21 school year that includes requiring the entities to submit the eligibility documentation for every student the teacher units serve … Further revisions are being made for 2021-22, and applicants will receive the new protocols in May.”

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