ADMINISTRATION FOR CHILDREN €22 FAMILIES 330 € Street, SW., Washington, DC 20201 wwrw.act.nhs.gov December 20, 2024 Mr. Bob Anderson Executive Director Department of Human Services P.O. Box 352 Jackson, MS 39205 Dear Mr. Anderson This letter is the penalty notice being issued pursuant to 45 CFR 262.4(a) for the misuse of federal Temporary Assistance for Needy Family (TANF) funds by the Mississippi Department of Human Services (MDHS) during fiscal years (FY) 2016, 2017, 2018 and 2019, As a result, the state of Mississippi is subject to a penalty amount of $10,880,029 In February 2020, the Office of Family Assistance (OFA) learned of the apparent multimillion- dollar embezzlement scheme in the state of Mississippi involving the misuse of TANF funds. The Mississippi Office of the State Auditor (OSA) issued a public statement indicating that special agents from that office arrested at least six individuals for a “range of violations involving fraud and embezzlement,”' Additionally, OSA indicated that after an eight-month investigation, those arrested conspired to obtain millions in public funds illegally from the TANF program administered by MDHS and used a variety of business entities and schemes to defraud the taxpayers. It further indicated that the total amount of TANF funds involved had not been determined. While the single audits for FYs 2016 and 2017 were closed before we leamed of the potential fraud, we noted that we would determine whether a penalty was in order after review of the FY 2019 audit was complete, in resolving the FY 2018 audit (HHS audit number A-04-19-66807), for findings 2018-045, 2018-046, and 2018-047 Specifically, in the first of those findings we wrote, “While we sustain the finding and recommendation, we are not making a determination regarding TANF penalty action at this time. Once review of the FY 2019 audit is complete, we will determine if TANF penalty action is required for this FY 2018 finding. However, we remind the State that it must ensure that it uses Federal TANF funds only for allowable expenditures and we expect the State to make the TANF grant whole with respect to any unallowable expenditures cited in the audit.” sms.gou/news/auditor-arrest ‘embezzlement-case-in-state-history/, February 5, 2020.Page 2—Mr. Bob Anderson ‘Additional information from subsequent 2019 Single Audit and Forensic Audits, described below, were used to determine the penalty amount of $100,880,029. Background Information from the FY 2019 Single Av On April 22, 2020, OSA issued its Single Audit Report for FY 2019 (AHS audit number A-04- 20-63662). This report explained that the OSA was alerted to significant areas of fraud risk by the Govemor of Mississippi on June 21, 2019. An internal audit conducted by MDHS uncovered a possible fraudulent scheme involving a third-party contractor in the TANF program and John Davis (JD), the former Executive Director of MDHS. After having been advised by MDHS of the scheme, the OSA Investigative Division conducted an investigation and subsequently a grand jury indicted six individuals for conspiracy to steal approximately $4 million in TANF funds ‘The Single Audit report for FY 2019 indicated that the “MDHS Executive Leadership (Specifically the former Executive Director, JD) participated in a widespread and pervasive conspiracy to circumvent 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 ineome at or below 300 percent of the Federal Poverty Level.” ‘The FY 2019 single audit report further stated, “Executive Director JD then instructed these two subgrantees ~ Mississippi Community Education Center (MCEC) and Family Resource Center ‘of North 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.”? ‘The audit report went on to indicate that former Executive Director John Davis “circumvented internal controls set in place by MDHS in regard to procurement, monitoring, and other allowable costs controls to direct monies to certain subrecipients, who then directed federal monies to individuals associated with JD... Due to high risk of additional fraud, waste, and. abuse other than what was reported to authorities or detailed in this report,” the OSA questioned the entire grant award amounts totaling $98,379,121 to subgrantees MCEC and FRC,? Of this total, the TANF grant award amount was $83,260,124. The other questioned costs include federal funding for three other federal grants (j.e., CCDF, SNAP, and SSBG). Management at the MDHS concurred with this finding.* 2 state of Mississippi Single Audit for Year Ending June 30, 2019, Finding 2019-030 (The Mississippi Department of Human Services Should Strengthen Controls to Ensure Compliance with Subrecipient Allowable Cost Activities, page 183. 3 State of Mississippi Single Ault for Year Ending June 30, 2039, page 249. Total questioned costs of Finding 2019- 030 were $94,164,608, while $4,214,513 was questioned in another finding for CCDF and SNAP. The total amount ppald to MCEC and FRC was $98,379,121. * State of Mississipp! Single Audit for Year Ending June 30, 2019, Finding 2019-030, page 250Page 3 —Mr. Bob Anderson ‘The Single Audit report made seven recommendations for MDHS to take swift and immediate action, one of which was “Procure an independent certified public accounting firm to conduct a ‘widespread forensic audit of MDHS to determine the extent of fraud, waste, 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.” Background Information from the Forensic Aw ‘MDHS retained CliftonLarsonAllen, LLP (CLA) in November of 2020 to conduct a forensic audit of the TANF program. MDHIS furnished us with a copy of CLA’s completed forensic audit, dated September 29, 2021. CLA performed forensie auditing of MDHS TANF transactions from January 1, 2016, to December 31, 2019, using a risk-based approach, targeting higher risk transactions through analytics to identify entities (subrecipients) and transactions that required detailed testing. MDHS confirmed its desire to have all areas of TANF expenditures tested and agreed to using a risk-based approach to perform the forensic audit so that 00 percent of transactions did not have to be tested in detail, CLA anticipated performing detailed testing on all transactions and entities where risk was not determined to be low. CLA did not test expenditures related to other funding sources from MDHS to subgrantees; however, to the extent unallowable costs were identified for other funding sources during the testing, that information was reported within the forensic audit. For the purposes of this TANF penalty notice, ACF has used information from the report titled, “TANF Forensic Audit: Procedures & Results” (hereinafter “forensic audit") which includes a listing of all funds spent on questioned or unallowed purchases by vendor, contractor, and subrecipient. In addition, we have relied on information from a second report titled, “TANF Forensic Audit: Findings of Possible Fraud, Waste, & Abuse” (hereinafter “F.W.A. forensic audit”), This report provides an aggregate listing of any funds that have been potentially embezzled, misappropriated or obtained under false pretenses, or of any possible waste or abuse of TANF funds, Both forensic audits noted that the professional standards promulgated by the American Institute of Certified Public Accountants (AICPA) prohibit CLA from rendering an opinion as to whether there has been any fraud or other criminal activity by anyone associated with the engagement. Because both the forensic audit and F.W.A forensic audit commissioned by MDHS are more ‘comprehensive in their review of expenditures than a single audit can be, we are relying on the expenditure data in these reports for determining the amount of TANF fuunds misused for the purposes of this penalty notice.Page 4 ~ Mr. Bob Anderson jesults of Forensic Au All TANF related disbursement categories (cost categories) were subject to the forensic audit procedures. The forensic audit results were separated into two sections: Results of Forensic Audit — MDHS and Results of Forensic Audit - Subgrantees. 1) MDHS Disbursements - The results for the MDHS disbursements relating to TANF were broken down into subsections: I. Subsidies, Loans, and Grants; 2. Disbursements Made for Direct Assistance’; 3. Services (Contracts); 4. Salary Disbursements; 5. Travel; 6. Equipment and Commodities.” 2) Subgrantee Disbursements - Twenty-eight (28) subgrantees were awarded TANF grants during the forensic audit period.® CLA performed testing of MDHS TANF transactions using a risk-based approach that targeted higher risk transactions through analytics to identify ‘subgrantees and transactions that required detailed testing.® The primary areas of testing for subgrantees were on subawards issued by the subgrantees to thitd tier subrecipients."° Allowability of Costs Under TANF. ‘The forensic audit primarily assessed the selected transactions for whether they were allowable ‘TANF expenditures. CLA determined whether an expenditure was allowable based on its understanding and interpretation of the applicable Code of Federal Regulations (CFR) sections and guidance published by the Administration for Children and Families (ACF) in the U.S. Department of Health & Human Services. CLA’s interpretations are not legal interpretations or conclusions. Ultimately, the final decision on allowability under TANF and the State Plans lies with DHHS/ACF, the federal awarding agency. Please see Attachment 1 - Mississippi Table for Misuse of TANF Funds Penalty, Fiscal Years 2016-2019, for a detailed accounting of the costs we used to calculate the amount of the penalty. See Attachment 2 - Allowability of Costs Under TANF, for an explanation of the eategories of expenditures that are cited in the penalty. 5 The MDHS-CLA contract referred to the direct subgrantees of MDHS as “subrecipients.” Throughout the forensic audit eeport, any reference to a direct subgrantee of MDHS was referred to as a “subgrantee.” When a subgrantee awarded and paid TANF funds toa third-party asa grant it was referred to as a “thied ter subrecipient.” ® payments for direct assistance are excluded from Attachment 1 because CLA determined that a sample did not eed to be tested. The forensic audit noted, “during the RFP process with MDHS, it was agreed that direct assistance payments were @ low-risk aree and CLA would only test transactions to payees for which 2 possible relationship to the former Executive Director, John Davis, was identified. Based on the analysis ofthe direct assistance payments, there were no payees Identified that had a connection to John Davis.” * Forensic Audit, p. 3. * Forensic Audit, p.1. ° Forensic Audit, p 5. 1g,Page 5 — Mr. Bob Anderson Penalty Amount In accordance with section 409(a)(1) of the Social Security Act, the state of Mississippi is subject to a penalty of $10,880,029 for the misuse of TANF federal funds. We arrived at the penalty amount based on the results of both forensic audits. Please see Attachment 1 — Mississippi Table for Misuse of TANF Funds Penalty, Fiscal Years 2016-2019, for a detailed accounting of the costs we used to calculate the amount of the penalty by cost category. See Attachment 2~ Allowability of Costs Under TANF, for an explanation of the categories of expenditures that are cited in the penalty. Below are summary tables. Please note that we include much more detail explaining our calculations, and the sources for those calculations, in Attachments 1 and 2, ‘which are incorporated in our penalty notice. Summary of Fi Misused, by Subgrantee Disbursement (source: TANF Forensic Audit: Procedures & Results) Entity. Total MONS $25,049,502 ‘100 Black Men of Jackson $223,063 ‘Autism Center of North Mississippi $75,000 Family Resource Center of NE Mississippi $16,385,895 : Heart of David Ministries $558,008 Jackson Medical Mall Foundation 1 $21,364 Mississippi Alliance of Boys & Girls Club $659,399 Mississippi Community Education Center 352,829,887 Mississippi State University $1,659,806 Moore Community House ine. $144,599 The University of Southern Mississippi $838,473 | TOTAL: ‘$88,455,035 Summary of Funds Cited as Misused from Fraud, Waste, and Abuse Transactions (source: TANF Forensic Audit: Findings of Possible Fraud, Waste, & Abuse) ‘These are CLA's findings as it pertains to evidence or documentation that is indicative of fraud, waste, and abuse identified through the performance of the forensic audit. The transactions were summarized into three categories. Category Total Summary of Payments Indicative of Conflicts of Interest by John Davis $4,112,285 ‘Summary of Payments Indicative of Undue Influence and Favoritism by John Davis | _ $7,488,078, Other Instances of Possible Fraud, Waste, or Abuse $3,824,631 TOTAL: — $12,424,994Page 6~ Mr. Bob Anderson Forensic Audit Total: 988,455,035, F.W.A. Forensic Audit Total: _ $12,424,994 PENALTY AMOUN: '5100,880,029 A grantee “bears the burden of documenting the existence and allowability of its expenditures of federal funds” under the applicable regulations and cost principles. See Touch of Love Ministries, Inc., DAB No. 2393, at 3 (2011) (citation omitted); see also Bright Beginnings for Kittitas Cnty., DAB No. 2623, at 5 (2015) (noting that the Board has held that it is a fundamental principle of grants management that a grantee “bears the burden of demonstrating the allowability and allocability of costs for which it received federal funding’”) (quoting Marie Detty Youth & Fam, Servs. Ctr., Inc., DAB No. 2024, at 3 (2006). It is well-settled that the ‘grantee bears the burden to show that a cost claimed under a grant is supported by adequate documentation, once that question has been raised by the grantor or awarding agency. See, e.g, Galveston Cnty. Comm. Action Council, DAB No. 2514, at 2 (2013) (citation omitted); Northstar Youth Servs., Inc., DAB No. 1884, at 5 (2003) (citations omitted). Next Steps As noted above, this letter constitutes the penalty notice set forth in 45 CFR 262.4(a). Section 262.4(b) explains the options you may elect within 60 days of receiving this notice. First, you may dispute the penalty, as provided at 45 CFR 262.4(a)(3), if you think “the information or method that we used were in error or insufficient” or that your actions “in the absence of federal regulations, were based on a reasonable interpretation of the statute.” Second, if you believe you have reasonable cause, you may make a claim explaining your grounds for an exception from the penalty in accordance with 45 CFR 262.5. Third, as provided at 45 CFR 262.6, you may enter into a corrective compliance plan (CCP) to correct or discontinue the violation and demonstrate how Mississippi will achieve compliance with federal rules and policies governing proper use of TANF funds. Fourth, you may accept our finding without pursuing any of the above options. Ifyou wish to pursue one or more of these options, you must submit the appropriate materials within 60 days of the date you receive this notification (see 45 CFR 262.4(b)). If you think the finding is incorrect, you should submit a letter explaining the grounds for your dispute, along with any documentation supporting your position. To make a claim of reasonable cause, you should submit a letter deseribing the grounds for a reasonable cause exception, including any documentation to support your claim. If you would like to enter into a CCP, you should submit such a plan. Ifyou elect to submit a CCP, to be acceptable, the plan must meet the requirements at 45 CFR 262.6 (d) and (c). ‘The end date of the plan must reflect the minimum time necessary 10 achieve compliance, The plan must include an analysis that explains why the state of Mississippi misused federal TANF funds and describe the milestones, including interim process and outcome goals the state will achieve to assure it will attain compliance on time. The plan must include an explanation of how you will ensure that such violations will not recur. The plan must also contain language stating that a finding of a misuse of funds in the audit used to determinePage 7~Mr. Bob Anderson compliance with the plan will result in the state failing to meet a requirement of the plan (and thus subsequently, we would impose the penalty), In addition, the plan must provide evidence that the state has revised its reporting to remove the $10,880,029 of misused federal funds and increased the TANF unobligated balance by that amount with unrestricted state funds that do not count towards the TANF MOE requirement. Further, the CCP should specify the corrective action the state is taking to ensure that its MOE reporting does not include any other funds that were fraudulently expended, As specified in 45 CFR 262.6(d)(3), the plan must include a certification by the Governor that the state of Mississippi is committed to correcting the violation in accordance with the plan. Please note that you may exercise the options outlined above in tur, awaiting a decision on one before submitting materials for the next. In such case, you would have 60 days from the date you receive our response to the first claim to submit the materials required to exercise another option. Alternatively, you may choose to exercise more than one option at once (including exercising all of your options at one time) by clearly setting forth which options you are exercising in your response to the 45 CFR 262.4 notice submitted within 60 days of the date you receive this letter. Alternatively, you may choose to notify us that you accept our finding without pursuing any of the options described above. If you choose not to pursue any of the options in 45 CFR 262.4, if the penalty is not resolved under one of those options, or if we receive no written response to this letter within 60 days of the date you receive it, we will issue a final determination in accordance with 45 CFR 262.7 which will allow you 60 days to file an appeal with the Departmental Appeals Board. Please submit any materials related to the options above, including a dispute of our finding of penalty liability, any claim for a reasonable cause exception, ot a corrective compliance plan, including any supporting documentation, within 60 days to the Program Manager for Region IV, Ms. LaMonica Shelton by e-mail at lamonica,shelton@acfhhs.gov. Ifyou have questions about the information in this letter or need assistance in developing your response, please contact Ms. LaMonica Shelton by e-mail or at (404) 562-2938. Sincerely, Digitally signed by Ann C. Flagg Ann C. Flagg -S: Date: 2024.12.20 1049:52-0500 Ann Flagg Director Office of Family Assistance ce: The Honorable Tate Reeves, Governor Attachments: 1. Mississippi Table for Misuse of TANF Fi 2. Allowability of Costs Under TANF nds Penalty, Fiscal Years 2016-2019[Attachment 1: Mississippi Table for Misuse of TANF Funds Penalty Fiscal Years 2016-2019 TANF Forensic Audit: Procedures & Results (Source: Table 73 on page 167 ofthe cust.) summary of Alowsble, ralbwable, ad Questioned Costs [eseription Mons [ubgrantees [Total [wade — Swans Sxzsraped Sarasa] [nlowabie Needs Aloeaton 36800786 saaraare| $33,675.74 Subtotal of Alowebie Costs $22,119,758 7.444563) sas s68.36 [GraionatiensuficentDocementaton Sioza.7s] $5,603,267] $6,747,820 [Sratowatie- Program Does Rot Serve Only nancy Neca Faris $5441 5] s0essoo]__soan7aag [Gratonstie- Program Doar Far Sene OA weedy Famates 4 ssearasy]___ssae7any atowabie- Does Not Comey wan CFR sirezaae] _siz.s68,377] _sa4,s50 503 Subtotal of Unliowoble Costs $6,248,705 $07 74a] $06,02,0 [Goesioned Coss i [—s10.656.08] 540,656,855 Total 303686 Se5579.038 5126348,077 "The allowale css oa $7 593,02 wat dee rm al ene crete ta temo the used an rs moun 3 esd on the Foren ut: Pree an Rents repo (S12 48,077 §3798508 = 58245505) ee heal eo fr he Sra oF MDH and Syne Utama Needs Alcon, ertone coe TANF Forensic Audit: Pecedures & Results (Source: Table 2 on poge 3 and Table 3 page 6 ofthe ous.) Summary of MOMS and Subpantee Unallowable, Needs Allocation, and Questioned Costs (Uratowabie= luratiowasie~ program Does Not naitowable— Iorensicaustt Jatowabie-__|nwutclent_|Sarve Only Financial -|Does Not como lenny pages Iweedsaiecation [Documentation _|Needy Families Jwtheer _lquestonea sts [ror ro pp.<7-78 3500706] s1.07a,75) $5.43 58 S72 $15,009 oo see Men ot ack pp. 83-39 $23,063 $223,063] [autem Center of Nocth MSS pp. 00-93 Trae $73,000 Family Resource Center of NEMssnnpp) oo. 92117 Ruano EmaTAl Seas] sissy] sean a) 35 305,05] Heart of bavi intr pp.22 12 52.69) $528.25) $5.30) Spo] $55.04 LeisonWecial Mal Foundation pp. 123-195 sno Sse 321364 IMisssinp lance of Boye ieee [pp 136-130 Sao) Seas) 3659.39) IMesisep Community Edueaion Center [pp 121155 $708.79) Sieg $aasaano] _s7oaeeal Sa GE] Boa ans. Misispp State Unversty po. 156-58 $1659.06] $659.06] Moore community Hour Ine pp. 159-16 Saas su40a0g| a) 3148595] [The Unversity of Southern Minas [pp 162-164 $838,073] 3838.073) ‘Soo Tiers Sira7 Re ‘S6R07508 $5,447,237 S14 50502 SAD,SEBTE SRS 035 Feenema t SBASSaBs “since he amounts ites on Tables 2a 3, but xd the “Alona Coss category whi totals £57,834 (61518958 fr MVS Table 2) an 5257486 or Subprantes Table 3). The awa costs rou ws subtracted rom all ether ects ta termine the penalty amount SI26308 077. $37 AB3O2- $850).auseves sens arenes ——Jearearve SBA] capa — Sea Tanepos uae REDT| ado —— Testo Sa swe] are Ea joven EEA ooers Seon Camaro ses zon] serecra| joven Bil em lscaers Son] sega foros Sal a i fersis Sonl_reeaaps] pipe wees ESS eS ies e690 fos Son] Baten Ps ascars Sul RATT foros 3a SEATS joososs Sul SORTA cose Ton] prec ue ecetecs Swan] poe oH ero Sei] STAR DH eecests §—_foobees Sxan[ TSaMV=ATOH] ——se-ee-ed eros ron seo. povass Tsao oH Frames) weno ake sted aie aaa Tap ay wOOT TE 315) sta wor A usnyoney ue svn) api je one atheg yo Mens securis mous fossa Saal ST esers (ROLL ee es fresseos Sean] oso Weta aei| sano coors SDH] on sono esoreuasuen| ad (oneq wor or mevensouni verses hesosaer 3 sopoq) ‘Sus ierver| vonepeon nana ‘el tama ——peawaay] aie sted a Tapa Tapa 3a 7 B60 08 Fee 33175) ‘seq wyor Aq asarawiso sijuog Jo ane>}yswuauikeg Jo ALewnng asnqy 9 “235M ‘pmedy 21918804 Jo SBuIpuly pny aSUaI04 INL(ther Instances of Possible Fraud, Waste, or Abuse (Source: Table 3 on poaes 67 ofthe audit.) lsenetary [ra Payee Paver [noua IMB Dank NAPE Lorn bave pp.s7-s9___|servces lows 1.367 [oNio cannot Lacon ack pp.s7-59___ [services mous su3e7 [varus pp.et= 63 [vaio FRc 35.09 ene ee pp. 63-68 _[amencan oprese[FnC S247 [ay Hams pp. 55 [uy nae FRc 357953 Beas Rivoas Cano lac rage Cain & Rsort pcs e.nosort rec 3598 [chase Comper [Cras Computer Services bo.cs-s [services rec $275,350 Fomiy Rare lamiy Resource Center FRC) 66-67 __|comeriency _ rac ss2any asweape 768 |Fartwrape FRc 3233500] IMcec Iucec Fac T3734] ow Learning Resources, ie Resoures.ine__[rac $523,056 fNoney New 68:77 Waney Wen [FR sual ess. New Less. New Frc $2406] fen w. new [zach New [FRE 357.455] orev Dupree 7 IMaraus upree [rac $7150) Development ence Development Foundation 78 Iroundovon enc s20.009 outieeInzT Souter lon.78-79 __|verton rnc siz7ara| Three Re panning ona [rceeriersPtnnngans bewopment _[pp.79-80 _|Oavalapment [enc 10 902 Fhvouan te Fe [rough the Fire Ministries, Le foo.so-s1 [wines uc [rae 525009 [orscan. pp. 8-62 fwwiscaa Re 519,309 [Sout hy Hosaly pp. 86-87 [soul Gay nosptany [cee $200,009) ‘Sobeotk Baas F.WA. Forensic Aut Tort: SRR 8 "This includes the amounts sted o Tables 2,2, and 3 2s fllons: Conf of intrest by John Davis $1212.25; Undue influence and favortism by Jha Davi- $78,079; and oter instances of possible fraud, waste, or abuse $3,624,631 (1.222.285 + $7,488,079 + 3,824,631» $12,424.89),Attachment 2 - Allowability of Costs Under TANF (Definitions of TANF Cost Categories Used in the Forensic Audit) Mississippi Department of Human Resources (See Forensic Audit Pages 3-5) The TANF cost categories tested for MOHS disbursements included Subsidies, Loans, and Grants; direct assistance’; services (contracts); salaries; travel; and equipment and commodities. In each category, CLA tested only a sample of transactions using a risk-based approach? ‘* Allowable — Needs Allocation: Costs in this category included sufficient supporting documentation; however, all ora portion of the cost was deemed to benefit other programs or activities of MOHS ‘and could not be fully allocated to TANF. Examples of these costs include: ‘© Purchases of goods or services that were of a general nature to MDHS, such as a membership to ‘American Public Human Services Association, costs benefitting both SNAP and TANF, and audit services related to multiple programs. ‘© Payroll costs for employees working in the Economic Assistance Division for which documentation could not be provided on the specific activities the employees were performing ‘but all payroll costs were charged directly to TANF, (© Travel costs related to conferences or trainings that were for the purpose of TANF and one or more other MDHS programs (e.g., SNAP], but the full cost of travel was charged directly to TANF. © Vehicles, computers and equipment, end other various commodities purchased for agency-wide use. MDHS did not have an appropriate method to allocate these costs to the TANF federal grant in accordance with the relative benefits received for the program, and MOHS did not distribute the cost proportionally using a reasonable method in accordance with 45 CFR § 75.405. ‘*Unallowable ~ Insufficient Documentation: Costs in this category either had insufficient documentation to support the transaction (e.g,, missing receipts/invoices) or the documentation provided was insufficient to determine that the cost could reasonably be calculated to promote the purpose of TANF, + payments for drect assistance were exclided from Attachment 1 because CLA determined that a sample didnot need to be tested. The forensic aud noted, “during the RFP process with MDHS, it vas agreed that direct assistance payments were @ low-riskarea and CLA would only test transaetions to payees for which a possible relationship tothe former Executive Director, John Davis, was identified. Bsed on the analysis of the direct assistance nayments, there were no payees identified that had @| ‘connection toleha Davis” 2 The Forensle Aust cites to provisions of 2 CFR Part 200. In this attachment, HHS cites to the corresponding 45 CFR Part 75 ‘tations. Part 75 is HHS's adoption of2 CFR Part 200. See 45 CFR § 75.106 (providing that HHS s implementing 2 CFR Part 200, Inte Part 75 regulations). » See 45 CFR 263,14 (providing that, n the TANF program, states shall use» benefiting program cost allocation methadology consistent with the requirements of Part 75, subpart)Page 2 Attachment 2 Allowability of Costs Under TANF ‘© Contracts and other agreements issued by MDHS for which the nature of the services or programs could not be determined; therefore, the correlation to TANF could not be established. (© Salary costs for which 2 personnel file and timecards were not available. ‘© Travel costs for which an underlying detailed receipt was not available or the purpose of the travel was unknown, + Unallowable ~ Program Does Not Serve Only Needy Families: Costs in this category include contracts or other agreements to provide services to Individuals that do not qualify as a “family” or “youth” under the TANF guidelines. Examples of these costs include: (© Contracts with universities to provide services that support college athletes. © Contracts with universities to provide services that support college students: disabilities. '* Unallowable~ Does Not Comply with CFR: Costs in this category include various types of expenses that are unallowable under CFR. Examples include: © Contracts and other agreements for which the services or program costs are related to another program of MDHS (e.g, SNAP © Entertainment costs, such as luncheons, © Travel costs for training unrelated to TANF and the employees attending the training do not perform any TANF related activities. Travel costs for first class airfare. Subgrantees (See Forensic Audit Pages 5 ~8) During the forensic audit period, MDHS awarded TANF subgrants to 28 subgrantees. The forensic auditor contacted each subgrantee directly, equested financial data and other supporting documents, conducted various analyses on the subgrantees, and assessed an overall risk score for each subgrantee. Additionally, the primary focus of subgrantee testing was on payments to third tier subrecipients, Based ‘on the risk score assigned to each subgrantee and the types of expenses incurred by the subgrantee, CLA determined the extent to which a sample would be selected for testing. If the subgrantee incurred costs related to third tier subrecipients and/or contracts, a sample was selected regardless of risk score. Based on the results of testing, CLA determined each cost tested to be Allowable or Unallowable, with certain subcategories defined based on the type of expenses. Unless otherwise specified within the forensic audit, the subgrantees and third tier subrecipients performed the services according to the terms of the agreements executed with the awarding agency, © Allowable ~ Needs Allocation: Costs in this category included sufficient supporting documentation; however, all ora portion of the cost was deemed to benefit other programs or activities of MDHS ‘and could not be fully allocated to TANF. Examples of these costs include: ‘© General accounting, bookkeeping, or payroll services provided to the subgrantee.Page 3 - Attachment 2- Allowability of Costs Under TANF © Laptops, tablets, phones, and peripherals used by the subgrantee's staff. © Software licenses and subscription services that benefitted all of the subgrantee’s programs and services. © Unallowable — Insufficient Documentation: Costs in this category either had insufficient documentation to support the transaction (e.g,, missing receipts/invoices) or the documentation provided was insufficient to determine that the cost could reasonably be calculated to promote the purpose of TANF. (©. TANF revenues received by a subgrantee that could not be substantiated by their TANF ‘expenses per the general ledger or disbursement ledger. (© Disbursements by a subgrantee for which supporting documentation was not available or the documentation did not adequately document the direct correlation or benefit to the TANF program. '* Unallowable ~ Program Does Not Serve Only Financially Needy Families: Costs in this category include subgrant agreements or third tier subrecipient agreements to provide services to families ithout assessing financial need as required under the TANF guidelines. Examples of these costs include: (© Grant awards to agencies to provide services to families with children with disabilities without assessing the financial need of families.* ‘© Unallowable — Program Does Not Serve Only Needy Families: Costs in this category include contracts or other agreements to provide services to individuals that to not qualify as a “family” or “youth” under the TANF guidelines. Examples of these costs include: (© Grant awards to universities to provide services that support college athletes. ‘© Grant awards to universities to provide services that support college students with intellectual disabilities. © Grant awards by the subgrantee to third tier subrecipients to provide training and support for ‘women attaining employment in the construction field. The women served did not have to be a parent or caretaker relative. ‘* Unallowable ~ Does Not Comply with CFR: Costs in this category include various types of expenses that are unallowable under CFR. Examples include: “As discussed inthe forensic aud section Vit Determining Alowabilty Under TANF, programs and services or families with children with disablites are required to assess Fnancil need ofthe femiles. However, the MONS 2018 State Plan revised the ‘equicements forthe Families Frat Resource Center initiative and removed the requirement for determining financial eligibility. ‘Supporting the needs of fmiles with children with disabilities was one of the servies provided under Faris First Resource Centers.Page 4- Attachment 2- Allowability of Costs Under TANF (© Scholarship banquets, holiday celebrations, and other activities that would be considered entertainment or recreational under 45 CFR § 75.438. (© Public relations and marketing costs (45 CFR § 75.421) © Penalties (45 CFR § 75.441) © Gifts (45 CFR § 75.421[eN(3)) ©. Contributions, sponsorships, or donations (45CFR § 75.434} © Self-rent (45 CFR § 75.465 (cl(6)) © Questioned: CLA identified two subgrantees with questioned costs for which a determination of allowability could not be made. For Heart of Davi, this related to a program for which there Is evidence that a fee was charged for participants and CLA has insufficient documnentatfon to determine whether any program income offset program expenses (45 CFR § 75.307). For Mississippi Community Education Center, the $40,636,665 of questioned costs include the TANF funds received ‘and expended by MCEC that could not be analyzed and tested due to the lack of cooperation by MCEC during the forensic audit.M DHS wre veut Dect os MSSBSPI DEPARTVENT OF HUMAN SERNICES February 18, 2025 Ms. Ann C. Flagg, Director Office of Family Assistance Administration for Children and Families USS. Department of Health and Human Services 330 C Street, SW ‘Washington, DC 20201 Dear Ms. Flagg: On December 20, 2024, the Office of Family Assistance (OFA) issued a penalty notice to the Mississippi Department of Human Services (MDHS) pursuant to 45 CFR § 262.4(@) for the misuse of federal ‘Temporary Assistance for Needy Families (TANF) funds during the years 2016, 2017, 2018 and 2019. This will acknowledge our receipt of the final penalty letter regarding misuse. Please be advised that MDHS is giving this matter our closest attention and we fully appreciate the gravity of the suggested penalty. We do not, however, believe that we (or OFA) have all the information necessary 0 arrive at a final penalty amount. ‘This letter is submitted pursuant to § 262.4(b) for the singular purpose described in § 262.4(b)(1) challenging the sufficiency of the information used by OFA to reach its penalty determination. MDHS appreciates the opportunity to engage with OFA and ACF/HHS as we attempt to move the agency forward for the betterment of Mississippi's needy residents, Asyyou ate aware, the agency has been involved for over two years in civil litigation aimed at recouping misused TANF funds, We have received hundreds of thousands of pages in the on- going discovery process that MDHS is hopeful may assist in ascertaining the full extent to which funds for the four fiseal years involved were misused—as compared to those amounts set forth in both the Single Audits for the years in question and the forensic audit conducted for this agency by CliftonLarsonAllen. These previous audits both categorized all funds provided to certain subgrantees as “unallowable” based on a lack of sufficient documentation. Through our ongoing discovery efforts, we have been attempting to validate the allowability or the misuse of a large portion of the fds. Thus, itis the position of the agency that the amount of penalty proposed by OFA is based on insufficient information and is disputed by the agency. It is the position of the agency that the vast majority of the suggested penalty is based not on evidence of misuse, but on a lack of documentation that we believe may now or soon be available. Be advised that MDHS intends to fully respond in detail to the final penalty letter, but we require additional time. We do not believe that this request is unreasonable considering our ongoing litigation and our joint desire to arrive at an accurate determination of the appropriate amount of any penalty. To those ends, we respectfully request that OFA allow MDHS additional 200. Lamar St, P.O, Bax 352 | Jackson, MS 39205 | (601) 359.4500 Offering Mississippians young and old tangible help today to create lasting hope for tomorrow.MDHS ste | MSSSPPI OEPARTVENT OF HUMAN SERVES time to provide a fulsome response to the penalty letter pursuant to § 262.4(b(1). We certainly intend to continue to engage in a dialogue with OFA while we move forward. Sincerely, Ah ACY fallen. Robert G. Anderson Executive Director ce: — Heather Flick Melanson, Chief of Staff to Secretary Kennedy Governor Tate Reeves 200 5, Lamar St, P.O. Box 352 | Jackson, MS 39208 | (601) 389.4500 Offering Mississippians young and old tangible help today to create lasting hope for tomorrow.