$117 million in improper unemployment payments made during early months of COVID, audit finds

State Auditor Shad White
State Auditor Shad White
Updated: Jun. 22, 2021 at 12:38 PM CDT
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JACKSON, Miss. (WLBT) - Individuals who were behind bars or who were never unemployed received improper unemployment benefits during the early months of COVID-19, a report from the Mississippi State Auditor finds.

State Auditor Shad White released the findings in its annual audit of state agencies Tuesday.

The report found that more than $117 million in improper unemployment benefits were paid by the Mississippi Department of Employment Security last year and during the early months of the COVID-19 pandemic.

It also revealed that the Mississippi Department of Human Services continued to fund the Mississippi Community Education Center and the Family Resource Center in fiscal year 2020, even after the two organizations were connected to more than $90 million in misspending of public money.

“I want to thank the auditors for their diligent work on this important report,” White said. “They overcame many logistical hurdles this past year. This excellent report shows it’s more important than ever to understand the mistakes that were made when money was flowing so freely during COVID.”

At MDES, auditors found several internal controls were suspended or bypassed during the pandemic. As a result, unemployment benefits also were paid to individuals who never lost jobs, were in jail, or otherwise ineligible to receive benefits.

Mississippi was not alone in reporting improper payments being made. $11 billion in unemployment overpayments were identified in California, the auditor says.

“Nearly every state I’ve talked to around the country lost millions of dollars to fraud out of their unemployment funds,” White said. “The federal government and state governments around the country do not need to repeat those mistakes the next time we have a recession.

“I hope this audit and those like it in other states are used to fix anti-fraud controls and prevent this kind of massive loss from happening in the future.”

All unemployment overpayments made by MDES after June 30, 2020, will appear in next year’s audit.

In a separate May 2020 report, the auditor also found a “widespread lack of internal controls at the Department of Human Services.”

Under the department’s previous leadership, MSDH failed to alert auditors of credible allegations of fraud involving grants awarded by the agency.

Additionally, the department continued to fund the Family Resource Center and Mississippi Community Education Center (MCEC), both of which were connected to the state’s largest public embezzlement scheme in the state.

In February 2020, six people were arrested in connection with that scheme, including John Davis, the former director MDHS, former DHS employee Latimer Smith, Dr. Nancy New, owner and director of the MCEC and New Learning, Inc.; Zach New, assistant director of MCEC, Anne McGrew, accountant for MCEC: and wrestler Brett DiBiase.

Nancy and Zachary New
Nancy and Zachary New(Hinds County Sheriff's Office)

Prosecutors say the News converted funds from MCEC to several other bank accounts. That money was then used to invest in Prevacous and PresolMD, which were owned by the two. The investments totaled more than $2 million.

Court records also show money was being transferred into the bank account of New Learning Resource, Inc. between March 2017 and May 2020. NLR was a for-profit Mississippi Corporation also doing business as New Learning Resources School District. Nancy was president and Zachary was vice-president.

Prosecutors claim the News created fraudulent claims through the state as “reimbursement for the salaries at NSS (New Summit School) in Jackson that the co-conspirators fraudulently claimed to be qualified for reimbursement under the Mississippi Adequate Education program.”

The two now face federal charges for conspiracy to commit wire fraud, eight counts of wire fraud, five counts of aggravated identity theft, and one count of money laundering conspiracy.

A copy of the audit is shown below.

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