Since she was arrested over a year ago for allegedly stealing millions of federal welfare dollars, Nancy New says she’s been anxiously waiting to tell her side of the story.

Now, the educator-turned-businesswoman is offering her version of events through a lawsuit she and her son filed against the firm that conducted her nonprofit’s annual audits. They blame the accountant for not accurately assessing her organization’s financial picture. 

Authorities have accused New, founder of the New Summit private schools and nonprofit Mississippi Community Education Center, and her son Zach New of embezzling $4 million in welfare money and, in a separate federal case, defrauding the state education department out of $2 million.

Authorities also charged the former director of Mississippi Department of Human Services John Davis, who administered the funds for the federal government, alleging he conspired with the News.

To help in Davis’ defense against embezzlement charges, his attorney subpoenaed a series of financial documents and audits from the state agency. But most of what he asked for doesn’t exist or isn’t in the agency’s possession, according to a records officer.

The embezzlement cases center on the federal Temporary Assistance for Needy Families block grant, which states have broad authority to spend to accomplish one of four vague anti-poverty objectives. The investigation originated at the State Auditor’s Office.

The more nonsensical payments — such as $1.1 million to Brett Favre to supposedly market the state’s social services — have dominated headlines.

But if recent court filings are any indication, arguments in the ongoing criminal cases could fixate on accounting technicalities and lack of record keeping. 

“Errors are different from fraud,” said Billy Morehead, an accounting professor at Mississippi College and chair of the Mississippi Public Procurement Review Board. “Fraud is an intentional misuse of funds. An error is a mistake. So if they can document that the funds were used appropriately, but they mistakenly recorded them or made errors in how they kept the financials, then obviously that lessens the focus of this as fraud or embezzlement. It’s just shoddy bookkeeping.”

Last year, Mississippi Department of Human Services hired a firm for $2 million to conduct a full forensic audit, which Nancy New said she expects to significantly contradict the state single audit released last May. 

“The forensic audit is going to prove a lot,” Nancy New told reporters in November. “This has become a numbers case.”

“There’s so many things that we did that we probably didn’t write down,” she added. “I don’t write down when I hand somebody (welfare clients) $50.”

Meanwhile, the nonprofit’s former staff accountant Anne McGrew tried to plead guilty for her role in the scheme, but a judge rejected the plea deal she reached with the state earlier this year.

Auditor Shad White previously said that the nonprofit’s own accounting was unreliable. The state had expected the forensic audit to be completed by the end of May, but a spokesperson for the state agency said New’s nonprofit has repeatedly denied the accounting firm the records it needs, delaying the audit. The agency now hopes to receive the report by July 1.

Five defendants in the alleged scheme, including McGrew, are still awaiting trial. 

The Department of Human Services has since changed its internal policy to ensure they award these grants competitively and require more reporting from subgrantees. 

Mississippi’s welfare program has consistently served fewer and fewer families since Congress replaced the former entitlement cash benefit program with Temporary Assistance for Needy Families, or TANF, during welfare reform in the 1990s. 

Over 30,000 families received cash assistance in 1998 compared to less than 3,000 in 2020, though Mississippi’s poverty rate remains one of the highest in the nation at nearly 20%. 

In accordance with local politicians’ philosophy about how to address poverty, Mississippi’s welfare agency has moved away from offering direct assistance in favor of ancillary services like parenting classes and motivational speaking, according to state reporting.

Under Davis, who envisioned a different, privately-operated approach to delivering social services, Mississippi Department of Human Services began transferring large chunks of its federal welfare grant to Nancy New’s organization and another nonprofit called Family Resource Center of Northeast Mississippi.

After showering the two nonprofits with tens of millions of federal grant funds, Davis required almost no real accounting of how they spent the money. In the case of most of the spending authorities have now questioned, Mississippi Community Education Center and Family Resource Center of Northeast Mississippi — not the state agency — wrote and signed the checks.

While they were supposed to be funding dozens of “Families First” resource centers across the state, a state audit published last May alleged they were actually paying for lobbyists, luxury vehicles, religious concerts, expensive getaways, publicity events with famous athletes and even a speeding ticket.

The News’ latest complaint at least partially blames the potential misspending on the third-party accountant’s alleged incompetence, but it also goes much further.

It expounds on Nancy New’s backstory, her vision for assisting needy families and how the promise of a statewide anti-poverty initiative devolved into Nancy working 14-hour days trying to meet Davis’ “special project” demands.

“This overload created shortfalls and made accounting for these programs, the funds associated with them, and the ways in which those funds could be spent, increasingly complex,” the lawsuit reads.

Nancy New expressed concerns over Davis’ fast and loose methods of granting welfare money, the lawsuit asserts, but her nonprofit complied with the agency’s instruction to lump all of its grant money together, confusing the accounting. 

The complaint, filed May 3, says the third-party accounting firm Williams, Weiss, Hester & Co. should have noted the large increase in federal grants, ensuring they used the funds properly — and alleges they didn’t. The nonprofit is also listed as a plaintiff on the suit.

But Morehead said it is not an independent auditor’s responsibility to tell organizations how to spend their money; in fact, that could compromise their independence and ability to conduct the audit.

“It’s not the auditor’s place to say what monies should be spent on which programs,” Morehead said. “The auditor would have responsibility if they discovered monies spent inappropriately to do additional testing, but the organization is the one who should be the one preparing the financial statements we see here.”

Though Mississippi Community Education Center’s cash balance was made up almost entirely of welfare funds, coinciding with the expansion of its partnership with the Department of Human Services, the News alleged that the third-party accountant “failed to disclose the restrictive nature of the reported cash.”

Williams, Weiss, Hester & Co. said in its 2018 audit that the nonprofit complied with requirements related to its federal grants. The lawsuit alleges the firm did not possess the specialty needed to perform the kind of federal single audit the nonprofit required — a deficiency the firm was cited as having in a 2017 peer review.

The 19-page complaint also claims that the welfare agency “and other public officials” assigned New’s nonprofit to fund multiple special projects, including Prevacus, the biomedical startup company that was developing a cure for concussions.

Several Mississippians had been involved in discussions about luring Prevacus into the state, including Favre and former Gov. Phil Bryant. Indictments against the News allege they used welfare money to make personal investments in Prevacus.

New’s lawsuit says officials also directed the nonprofit to pay for projects with Ted DiBiase Sr. and Jr.’s companies, the foundation of a virtual reality technology company called Lobaki, Paul Lacoste’s boot camp, the ministry of Christian musical artist Jason Crabb and Rise Malibu, the drug rehab facility where Brett DiBiase received treatment for four months.

Nancy New told reporters in November that her attorney Cynthia Speetjens had instructed her not to speak publicly about what happened. Shortly after that, a judge issued a gag order on all parties to the case.

“I wanna scream it to the rooftops,” New said when approached by reporters at her north Jackson home — property federal authorities would later allege was purchased with public special education dollars. “There’s a lot more information to come and we’re just waiting our turn.”

Mark Carroll, the attorney representing the nonprofit and the News in this complaint, is not the same attorney representing either of the News in their criminal cases.

The records Davis’ attorney Merrida Coxwell received through his subpoena, which are now considered discovery in Davis’ trial, do not contain any immediately revelatory information. In fact, they are mostly documents that the media have already obtained and published.

What the records do show — and what could be a clue about Davis’ possible defense — is the number of state agency officials who signed off on the nonprofit’s sharp spending increase that investigators have now questioned. They also show how severely the agency lacked a paper trail of grantees and what they accomplished.

The New nonprofit submitted to the welfare agency periodic “closeout” documents, which are supposed to contain the financial and performance information the agency needs to ensure the nonprofit complied with grant requirements and spent the funds properly. The reports outlined grants as large as $18 million in one year and contained vague spending details, such as $1.2 million on salaries, $82,000 on travel and $15.7 million on “subsidies, loans & grants.”

The News’ lawsuit explained that Davis’ agency instructed the nonprofit to divide its annual budget into those broad categories. 

A total of 14 different agency employees signed off on these reports from 2017 to early 2020 before the February arrests. 

Mississippi Department of Human Services Communication Director Danny Blanton said that the vague nature of the reports meant that those employees, some of whom are still with the agency, would not have been able to tell that the nonprofit was allegedly misspending the money. “The closeouts were conducted properly,” Blanton said. “They weren’t doing anything wrong by signing off on it.”

During the Davis administration, the agency did have monitoring and program integrity divisions, whose function was to ensure subgrantees followed contract guidelines. But Blanton told Mississippi Today that any time a compliance officer started to ask questions about certain nonprofit spending, “Davis would pull them back.”

Just as Davis was taking over in 2016, the agency requested a bill to separate child protection services from the Mississippi Department of Human Services. More quietly, the legislation also exempted all Human Services employees from protections under the state personnel board, meaning Davis could more easily fire employees at his will. Blanton described a culture of intimidation at the agency under Davis. “He would terminate someone on a whim,” Blanton said.

The subpoena itself, and the items that couldn’t be produced, provides some insight into the mindset of the defense.

Coxwell asked for nine items: 

• Mississippi Community Education Centers annual final fiscal reports from 2017 to 2020
• Any response Mississippi Department of Human Services made back to MCEC in response to those fiscal reports
• Reports, summaries or notes created during yearly telephone reviews or in-person visits from the regional TANF office to MDHS from 2017 to 2020
• Reports, summaries or notes created during yearly telephone reviews or in-person visits from the regional TANF office to New’s nonprofit from 2017 to 2020
• Reports, summaries or notes created during Regional TANF Program Manager LaMonica Shelton’s 2018 visit to New’s nonprofit
• The bank name and account number where MDHS deposited funds to the nonprofit.
• Single audits for years 2017-2020 produced by New’s nonprofit
• Supplemental audit or review of the nonprofit’s use of money for drug and alcohol treatment for Brett DiBiase
• The nonprofit’s monthly outcomes reports from December 2018 to July 2019 required by their MDHS contract 

In return, he received the closeout documents, just one 2017 audit, and “outcome reports” that were supposed to explain how many people they served but instead, Mississippi Today previously reported, contained nonsensical figures. 

The agency said it did not possess any agency response to the nonprofit’s fiscal reports, any notes or summaries of any annual meetings with federal authorities, any audit or reviews of the nonprofit’s payments to DiBiase’s drug treatment. Shelton did not return emails to Mississippi Today.

Blanton confirmed that the agency never received annual audits from New’s nonprofit after 2017, as is typically required. Agency officials had sent letters to the nonprofit asking for the missing reports, Blanton said, but were ignored. MCEC did file a 2018 audit with the Mississippi Secretary of State, but did not file an audit for 2019, when most of the alleged embezzlement occurred. 

Trials in Hinds County are set to begin no earlier than Sept. 9 for Davis and Oct. 4 for Nancy and Zach New. 

McGrew, the nonprofit’s former accountant, could stand trial Aug. 2 if she doesn’t reach a plea deal with the state as she initially attempted. Former Mississippi Department of Human Services procurement officer Latimer Smith may go to trial Sept. 27.

Attorneys could request additional continuances or reach plea deals before then. Former professional wrestler Brett DiBiase, who was accused of receiving $48,000 from the welfare agency for work he did not complete, is the only defendant to plead guilty so far. He faces a maximum prison sentence of five years, but he won’t be sentenced until he’s finished cooperating with the state prosecution against the other defendants.

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